Policy

Last year, I posted a cautionary article about the danger of letting opponents define you. If you thought I was overwrought when I suggested that “Picking Daisies” — the campaign ad that in all likelihood sunk Barry Goldwater’s presidential ambitions–had anything to do with public support for higher education, let me encourage you to spend the next hour watching this little number. It is called “College Conspiracy,” and it has one message: “College education is the biggest scam in US history,” I have made it easy for you. Just click play.

If you doubt that political warfare is being waged and that its aim is to provoke rage– to undermine public support for colleges and universities–just sit back as the ominous music leads you to the inevitable conclusion:

There is no reason that we the taxpayer should be funding college education.

It’s available on dozens of video sharing sites, including YouTube, which reports over two million views. That number is an order of magnitude larger than the number of copies of all books about how to improve higher education published in the last decade. Two million enraged viewers is enough to sway votes. It’s enough to pressure legislators. It is a large number.

There are close-ups of distraught faces and stories of foul greed:

Education ruined my life!

The camera shifts to the sympathetic interviewer:

They’re just vultures.

A clearly knowledgeable and steely-eyed commentator says that you don’t need a college degree to be successful and that the escalating costs of getting one is a harbinger of hyperinflation.

The narrator, with charts and graphs, argues that, like semiconductors, prices should actually be going down. For-profit colleges and traditional institutions are all painted with the same brush. They defraud students who, in exchange for exorbitant fees, end up with a worthless piece of paper that qualifies them for exactly the same low-paying jobs that high school graduates hold. Despite the Georgetown data showing that we have too few universities, steely-eyed commentator says that we have far too many.

You can pack a lot of disinformation into an hour. It took just thirty seconds to sink Goldwater. The problem is that “College Conspiracy” intermingles facts with distortions and tortured logic.

Student debt now exceeds credit card debt: true
Institutions engage in reckless capital spending that impresses prospects but adds nothing to the value of an education: true
Multimillion dollar packages to coaches and an emphasis on the entertainment value of intercollegiate sports distorts and corrupts academic missions: true
Tuition has risen at twice the rate of healthcare costs and the public does not know why: true
Learning outcomes and completion rates have gotten worse: true
Grade inflation has devalued diplomas: true
Students are not told that their degrees do not entitle them to a high-paying job: true

What nobody is told, for example, is that universities like the University of Chicago have reconstructed their approach to college football to make sure that it supports the academic mission. Or that a college education can be worth a lot to a student who studies at the right school and majors in the right subject. It doesn’t matter. Two million times, a story with elements of truth beat like a drum the message that higher education is not worthy of public support. What do we say?

Here is how I answered that question last year:

How do American universities respond? Meekly. As reported in the Chronicle of Higher Education, university leadership has been slow to recognize the direction and force of prevailing winds. A common mistake in business and politics is to focus on the feel-good stuff that is ultimately valueless, and universities are making the same mistake. The Chronicle reports that former MIT vice president John Curry told a gathering of heads of public universities to stop clinging to “worn out myths about campus strengths.” Curry told the group, “We like our stories more than the truth.” That leaves a vacuum for others to tell their versions of the truth. It was devastating to Goldwater and it will be devastating to higher education.

Facing the truth is an important part of focusing on the value of a university education, and Gerard Adams–the force behind “College Conspiracy”–knows that. He is the sympathetic interviewer. He is also president of the National Inflation Association (NIA), which produces not only “College Conspiracy” but other doomsday videos predicting hyper-inflationary consequences of monetary policy, healthcare reform, and food prices. What NIA is really all about is promoted prominently on their website:

Our goal is to help as many Americans as possible become aware of the disaster we are rapidly approaching. In our opinion, the wealth of most Americans could get wiped out during the next decade, but it will be an opportunity for a small percentage of Americans to become wealthy by investing into companies that historically have prospered in an inflationary environment, such as Gold and Silver miners and Agriculture producers.

NIA is a fringe group,and their activities are under scrutiny. But two millions viewers is a lot of viewers. Add to Gerard Adams conservative economists like Richard Vedder, who says through his organization Center for College Affordability and Productivity (CACP):

The pell-mell investment in sheepskins is beginning to look an awful lot like something our economy has seen in real estate: a debt-fueled asset bubble. It might end just as badly.

CACP has a message that is capable of reaching mainstream Americans. On the September 16, 2011 edition of the NBC Nightly News with Brian Williams, Richard Vedder’s voice was the one that reached 7 million viewers. He said college was “less good” as an investment. New York Mayor Michael Bloomberg said, “College kids can’t find jobs and that could lead to riots in the streets.” And then there was an anonymous student who said to all of Brian Williams’ 7 million viewers: “College is a scam.”

Add the NIA audience to the NBC audience and you get roughly 10 million viewers. “Picking Daisies” was watched by an audience of 50 million. The Republican response was to complain about the fairness of the ads, but a week after the ad aired, a Harris poll found that half of all Americans believed that Barry Goldwater would involve the US in a nuclear war. What will be the response of higher education to “College Conspiracy”?

Others will define you if you don’t define yourself.

#change11

Under-producing and Under-performing: American Higher Education Needs 200 more Universities

September 13, 2011

Comment and Review, Policy

2 Comments

They are consistent memes. We do not have to invest in American colleges and universities because (1) most jobs do not require a college degree, (2) there are too many college students already, or (3) long-term income is not related to level of education.

I hear their echos at neighborhood social gatherings. CCAPs Richard Vedder has been touting off-shoring and the shortage of tradesmen as a reason for not “mindlessly increasing college enrollments” for several years now. They are a consistent talking point in states that feel the need to reduce their expenditures and see the public university system as a fat, juicy target. If college graduates wind up driving cabs and flipping burgers — cartoonish versions of the truth — what is the real value of a college diploma?

Before anyone else buys into the idea that we need fewer — not more — college graduates, we should probably go to the videotape. A report entitled The Undereducated American casts grave doubt on some underlying assumptions that sound plausible on the surface but seem to crumble away when they are examined more closely.

Anthony Carnevale and Stephen Rose focused a lens on the production of college graduates compared to the market demand. They concluded that

The United States has been under-producing college trained workers since at least 1980.
Supply has failed to keep up with demand, resulting in a ten-year shortfall of up to 20 million graduates.
The underproduction of college graduates is a significant cause of income inequality in America.

The most striking thing about their analysis is that it relies on traditional economic theory. Employers would have to be in a national conspiracy to behave irrationally to conclude otherwise.

According to Carnevale and Rose, the demand for college graduates has been growing at 2% annually since 1980 but the higher education system has been falling short of that demand by at least 0.5%. That’s a current deficit of 20 million college trained workers.

To put that in perspective: it would take an additional 200 universities the size of Georgia Tech just to fill that gap.

What about the idea that college graduates are being shunted into low-wage jobs that “don’t require a degree?” In truth college graduates hold only a tiny percentage of the jobs for which a college education is overkill. College-trained workers account for only 7% of the total number of cashiers and hairdressers for example. It is simply not true that the nation’s colleges and universities are producing overqualified line cooks.

Remarkably, even in those cases where a low skill job is held by a college graduate, a bachelor’s degree results in a “wage premium” for workers. On the average, college-educated hairdressers earn nearly 70% more than their high-school graduate workmates. Retail sales clerks fare even better: the 18% of the retail sales personnel who have college degrees earn 73.2% more than someone who has only a high school diploma. It is a wage premium that grows to 75% for some middle skill jobs.

Carnevale and Rose also analyze income discrepancies across the entire economy, concluding that the lack of college-trained personnel to fill available positions is a cause of income inequality. It is a problem that is compounded by the increasing selectivity of some colleges and universities. They with increasing frequency select their freshman candidates from a narrow socioeconomic pool. So, not only do they earn more, but they come from families with disproportionately large incomes and personal fortunes.

Arizona State president Michael Crow once laid a large chart in front of me and pointed out that “The United States has not increased capacity in higher education since 1960.” He was right. We need 200 more universities just to get back in the game.

Another View of Faculty Productivity

August 4, 2011

Policy, Practice

"If you have to ask": Ten sure-fire ways to lose money on research

May 18, 2011

Policy, Resources

6 Comments

Normally collegial discussions took a nasty turn after I suggested that most universities lose money on sponsored research.

Incredulous: “I don’t believe it. My department tacks a 50% surcharge to all my contracts; how can they lose money?”

Defensive: “Here are all the reasons that doing research is a good thing, so what’s your point?“

Defensive with an edge: “Why are you attacking research?“

Let’s be be clear about it: if it’s your institution’s mission to conduct research, then spending money on research makes perfect sense. In fact, it would be irresponsible to deliberately starve a critical institutional objective like research.

On the other hand, there are not all that many universities with an explicit research mission. But there is an accelerating trend among primarily bachelor’s and master’s universities to become — as I recently saw proclaimed in a paid ad — the next great research university. The university that paid for the ad has absolutely no chance to become the next great research university. Taxpayers are not asking for it. Faculty are not interested. Students and parents don’t get it either.

The administration and trustees think it’s a great idea. Research universities are wealthy. Scientific research requires new facilities and more faculty members. Research attracts better students. Best of all, federal dollars are used to underwrite new and ambitious goals. Goals that would be out of reach as state funding shrinks. As often as not, the desire to mount a major research program is driven by a mistaken belief that sponsored research income can make up for shrinking budgets. It’s a deliberate and unfair confounding of scholarship and sponsored research

If your university is pushing you to write grant proposals to generate operating funds, then alarm bells should be going off. Scholarship does not require sponsored research. Chasing research grants is a money-losing proposition that can rob funds from academic programs. It’s an important part of the mission of a research university, but for almost everyone else, it’s a bad idea. It’s a little like shopping on Rodeo Drive: there’s nothing there that you need, and if you have to ask how much it costs, you can’t afford it.

How is it possible to lose money on sponsored research? After all, professor salaries are already paid for. The university recovers indirect costs. Graduate and undergraduate students work cheap.

A better question is how can anyone at all can possibly make money on sponsored research. Many companies try, but few succeed. A company that makes its living chasing government contracts might charge its sponsors at a rate that is 2-3 times actual salaries. Even at those rates, it is a rare contractor that manages to make any money at all.

On the other hand, a typical university strains to charge twice direct labor costs. Many fail at that, but the underlying cost structure — the real costs — of commercial and academic research organizations are basically identical. There is a widespread but absolutely false assumption that underlying academic research costs are lower because universities have all those smart professors just waiting to charge their time to government contracts. The gap between what universities charge and what sponsors are willing to pay commercial outfits is the difference between making a profit and losing a lot of money. Just like intercollegiate athletics, sponsored research programs tend to lose money by the fistful.

Let me say up front that the data to support this conclusion are not easy to come by. Accounting is opaque. Sponsors know a lot about what they spend, but relatively little about what their contractors spend. It is in nobody’s interest to make the whole system transparent. But my conversations with senior research officers at well-respected research universities, paint a remarkably consistent picture. With very few exceptions, it takes $2.50 to bring in every dollar of research funding.

Fortunately, the arithmetic is easy to do. If you know the right questions to ask, you can find out how much sponsored research is costing your institution. Here are ten sure-fire ways to lose money on sponsored research. You do not need all of them to get to a negative 2.5:1 margin. If you are clever just a couple will get you there.

Reduce senior personnel productivity by 50%: university budgets are by and large determined by teaching loads, a measure of productivity. It is common to adjust the teaching loads of research-active faculty. Sometimes normal teaching loads are reduced by 50% or more. It is, some argue, table stakes, but a reduced teaching load is time donated to sponsored research because funding agencies rarely compensate universities for academic year support.
Hire extra help to make up for lost productivity: Courses still have to be offered, so departments hire adjuncts and part-time faculty.
Do not build Cost of Sales into the contract price: The sales cycle for even routine proposals can be months or years. Time spent in proposal development converts to revenue at an extraordinarily small rate. In nontechnical fields and the humanities where research support is rare, the likelihood of a winning proposal is essentially zero.
Engage in profligate spending to hire promising stars: Hiring packages for highly sought-after faculty members can easily reach many millions of dollars. A sort of hiring bonus, there is little evidence that this kind of up-front investment is ever justified on financial grounds.
Make unsolicited offers to share costs: Explicit cost-sharing requirements were eliminated years ago at most federal agencies. Nevertheless, grant and contract proposals still offer to pay part of the cost of carrying out a project.
Allow sponsors to opt-out of paying the indirect cost of research: An increasingly common practice is to sponsor a research project with a “gift” to the university. Gifts are not generally subject to overhead cost recovery, so a university that agrees to such an arrangement has implicitly decided to subsidize legal, management, utility, communication, and other expenses, and
Accept the argument that indirect costs are too high: The meme among federal and industrial sponsors is that indirect costs are gold-plating that must be limited. Rather than believe their own accounting of actual costs of conducting research, they argue that universities, should limit how much they charge back to the sponsor.
Build a new laboratory to house a future project: Sponsors argue that it is the university’s responsibility to have competitive facilities. But that new building is paid for with endowment funds or scarce state building allocations that might have gone toward new classrooms or upgraded teaching labs.
Offer to charge what you think the sponsor will pay, not what the research will cost: Money is so tight at some funding agencies that program managers are told to set a (small) limit on the size of grants and proposals independent of the work that will be actually be required.
Defray some of the management costs of the sponsoring agency: It has become so common that it is hardly noticed. University researchers troop into badly-lit conference rooms to help program officers “make the case” to their management.

The list goes on. It is so easy to turn a sponsored research contract into a long-term commitment to spend money for which there is no conceivable offsetting income stream that institutions routinely chop up the costs and distribute them to dozens of interlocking administrative units. The explosion in the number of research institutions has all the elements of an economic bubble.

It is motivated by a gauzy notion that all colleges and universities are entitled to federal research funds..
It is fed in the early stages by accounting practices that make it easy to subsidize large expenditures.
It has the cooperation of funding agencies who know that the rate of growth is not sustainable.

Virtually everyone involved in university research knows that the bubble will burst. A colleague just showed me an email from his program director at a large federal research agency. It said that — regardless of what he proposed — the agency was going to impose a fixed dollar amount limit on the size of its grants. But in order to win a grant, he had to promise to do more. His solution: promise to do the impossible in two years instead of three. Just like the famous Sydney Harris cartoon, a miracle is required after two years. At least there would be enough money to pay the bills while a new grant proposal was being written.

What's for Lunch?

January 21, 2011

Policy, Resources

2 Comments

Awhile ago, I mentioned India’s plan to create 27,000 new colleges and universities over the next decade. Well, guess what? I was wrong. The number is now 35,600. Here’s what I said a year ago about Education Minister Sibal’s plan to expand India’s capacity in higher education:

What does this have to do with American colleges and universities? Just as low-cost, high value service industries have migrated to India, the higher education market in the US will also start to buy more educational services there as well.

So I was immediately drawn to yesterday’s Business Week article about California’s intention to make a quick lunch of its seed corn by cutting university spending $1.4B and the likely effect that snack will have on job growth and tax revenue.

Particularly striking to me was VC Robert Ackerman’s reaction to the massive and rapid expansion of higher education in Asia:

Right now, if I were the Chinese university system, I’d be running ads showing up on UC websites, recruiting students to universities in Beijing and Shanghai.

Now I am not a big fan of the proposition that value in higher education can be measured in dollars spent–if American institutions made better use of their budgets, then the resulting efficiencies would actually increase capacity–but there is little doubt that wholesale dismantling of universities across the country is a very bad idea.

We are shrinking university capacity at a time when India, China, Singapore and many other countries are increasing theirs. India alone will create 600 new research universities. China is increasing its capacity in research universities while the U.S. has created one new research university this century: UC Merced. Since Merced is part of the California system, its prospects are dimmer by the moment. Only a handful of new universities of any kind have been created in the U.S. since 1960, a period in which college enrollments have quadrupled.

Why is falling capacity so important? Because the worldwide market is growing, and we are systematically reducing our share of that market when economic competitors are moving in the opposite direction. I leave it as a homework exercise to determine what happens when an enterprise loses market share in a growing market.

Buon appetito!

—Innovate.EDU

Change and Transformation for American Colleges and Universities

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