The authors discuss their book on economics and higher education

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In good times and bad, colleges cite economic trends to justify their decisions. But do colleges operate with an understanding of economics?

Sandy Baum, nonresident senior fellow at the Center for Education Data and Policy at the Urban Institute and professor of economics emeritus at Skidmore College, and Michael MacPherson, chair emeritus of the Spencer Foundation and Macalester College, want to help. They wrote a new book, Campus Economics: How Economic Thinking Can Help Improve College and University Decisions (Princeton University Press), to do so.

They answered by email questions about their book.

Q: What is the aim of your book?

a: Goal Campus Economics It is not to point readers to specific solutions to the challenges they face on their campuses. Instead, they help all those involved in decisions on campus approach problems analytically, considering the trade-offs involved and considering incremental changes rather than simply comparing the value of one campus to another. We hope to make it easier for people with different campus responsibilities, preferences, and priorities to be open to each other’s vocabulary and to engage in constructive conversations that lead to better decisions that are more acceptable to the entire community.

Q: You have a chapter called “Is College a Business?” In this chapter you write that students are clients in at least some ways. Many faculty members and some administrators will likely answer “no” to the first question and disagree with your second point. How would you answer the question, and why is it important to talk about such opinions with people who might disagree?

a: Liberal arts educators may be deeply committed to the idea that this is the form of education that can best prepare people for a changing society and economy. But students must be open to this idea before they come to college to be convinced to enroll in these programs rather than career-oriented training programmes. In other words, consumer preferences – and the formation of consumer preferences – should play a role in the planning process of educational institutions. Colleges must attract students to be able to introduce them to the educational opportunities they offer. Ignoring students’ preferences and willingness to pay is not a viable option.

But our main message here is that colleges are very different from most for-profit corporations. The primary objective is to fulfill the institutional mission which may include research and public service in addition to education. Unlike most corporate clients, students are important participants in the production of the faculties of education they offer. However, the unique characteristics of colleges and universities do not negate the fact that they depend on revenues and the importance of using available resources as efficiently as possible to achieve their goals.

Those most responsible for the business side of the enterprise must keep the college’s mission front and center, and be willing to make choices that few for-profit entities make. And faculty must realize that they can only teach students who choose to enroll and that available resources are limited, necessitating difficult choices. Constructive discussion about unavoidable trade-offs requires that different audiences respect each other’s language and viewpoints.

Q: You write, “It might be entirely reasonable for a college to keep an archeology department even if it had a few majors.” Many colleges have made the number of majors a key in decisions about eliminating departments. When is this a reasonable decision?

a: We use this example to illustrate the complexity of decisions for academic institutions. Even if there are no students majoring in a particular field, courses in that subject can be very important to many students and to the broad skills and perspectives that a liberal arts education nurtures. (Mathematics departments often have a large number of enrollments but very few majors.) Some departments may cost money and require the diversion of resources from other endeavors. Certainly, the Department of Archeology in our example should serve someone other than the faculty themselves, but the number of majors does not provide a simple valid measure. For example, in some cases, the department may produce research that is valuable beyond the walls of the university.

Finding that college revenues would increase if all required courses were abolished does not in itself mean that there should be a radical reform of the curriculum. But this does mean that the cost of requirements should be recognized and the source of funds to cover those costs identified.

It is quite reasonable for some parts of the college to support others. Even if costs and revenues could be accurately measured for each component of an organization, eliminating those that did not bring in the revenue needed to pay for themselves would not be consistent with the educational task. With this example, it is easy to see that good solutions will require faculty to understand the financial realities and business personnel to assess the basic learning of the organization’s mission so that they can communicate well and arrive at well-balanced decisions.

Q: What do you think about possession? Will it be applicable when many (fixed) jobs are cancelled?

a: The share of faculty who are on or on a career path has been declining for years, and it is not clear what share of faculty needs to be in this system for it to continue to play its critical role. But supportive and following faculty are central to the operation of most institutions and are more likely than those with less job security to be dedicated to the institution’s success. Having length of service also helps build confidence in the integrity of the institution and its commitment to academic freedom.

As we point out in our book, possession is a form of compensation. One consequence of reducing faculty job security by eliminating tenure is the need to pay more to recruit and retain excellent faculty. Calls to eliminate the tenure period to reduce budgetary pressures may not be well thought out.

As with other contentious issues on campus, there are costs and benefits to most options. Even strong advocates must recognize the costs and opponents must recognize the benefits. An open discussion of the extent to which a large quota of faculty reduces flexibility, the importance of a strong appointment system to attract and retain outstanding faculty, the tensions between tenured faculty and those outside the system, and the contribution of the system should allow for freedom The campus academy encourages those with different perspectives to learn from those with whom they disagree.

Q: How does the college reduce its budget when it is facing a decline in revenues?

a: The first question, of course, is whether budget cuts are necessary. Perhaps there is emergency money that could fill the void. It may be possible to temporarily increase the withdrawal of the giveaway. Perhaps new sources of revenue are likely to emerge.

But sometimes budget cuts are requested. Corporate planning should include projected revenue declines. Did economic conditions make it possible to cut government appropriations? Has a combination of the pandemic and international tensions caused international student enrollment to drop? Or was there really a surprise? The decision-making process is likely to be very different when there is no choice but to respond quickly.

Equally important: Does the decline in revenue appear to be prolonged or is it just a blip? For an unexpected short-term decline in revenue, one-time responses such as a temporary hiring freeze or deferral of increases may be widely accepted. But if a long-term decline in revenue is expected, the people in the college will need to work together in looking for opportunities to reverse the trend or, if that is not possible, to determine the best ways to make long-term cost reductions in ways that allow the college to continue to pursue its mission.

It’s helpful to think of the difference between short-term and long-term revenue increases parallel to decreases. A one-time infusion of federal pandemic money or revenue from commercial success could provide an opportunity for a comprehensive salary bonus. But using it to raise everyone’s basic salary is likely to lead to problems down the road. Likewise, a short-term decline in revenue does not necessitate the salary cut that employees will feel years into the future.

One of the main risks to avoid is having each group on campus focus on protecting their own piece of the pie, a reaction that can make constructive change difficult or impossible. The best way to avoid this poor outcome, in our opinion, is to promote openness about budget planning and communication across all groups on campus. This should happen on a regular basis, in both the best times and the hard times. It’s not a good idea for management to keep faculty and staff in the dark until problems hit and only then say, “Okay, guys, we’re all in this together.”

Q: Inflation has returned to college budgets (and the budgets of individual college staff). How would you suggest that colleges understand inflation?

a: In times of high inflation, everyone suffers from anxiety and doubts, which are a predisposing condition for distrust. The best course to follow will depend on the circumstances of a particular college, but the more members of the college community recognize the need to collaborate and acknowledge each other’s challenges, the better the chances of successfully weathering the storm. We encourage administrators and board members to recognize the hardships that inflation creates for faculty and staff who were already struggling to make ends meet. We encourage staff to be aware that inflation may also affect the college’s ability to generate tuition fee revenue. In other words, everyone must remember what the goals of the institution are, how important the people working on campus are to success, and the fact that everyone may have to make compromises.

The recent uptick in inflation is a reminder that colleges cannot excuse themselves from major developments occurring on a community level, such as a pandemic or the effects of climate change.

One particular challenge in higher education is making major cost and revenue decisions in advance, with budgets set for at least a year. It’s not like airlines where fuel and ticket prices change overnight or sooner. Colleges and universities cannot be sure that the wage increase in the budget will prove large enough to match the rising cost of living. Will families view tuition increases as a reasonable response to rising costs or as an act of exploitation? Will the increase in the prices of utilities, goods and equipment lead to budget overruns?

As with dealing with other financial challenges, planning ahead for alternative possible scenarios always makes it easier to navigate circumstances that arise. There is no way to fully protect anyone on campus from the impact of inflation. But discussing potential strategies, learning about the costs to different groups of different options, and reducing everyone’s natural tendency to focus on their own problems may ease the process.