Academia: The Worst-Managed Industry in America

In the field of management science, numerous theories and practices exist. Our business schools—generally regarded as the finest in the world—have created magnificent bodies of research, case history, and most of all, the constant feedback and input from business managers about the problems they face and the ways those many problems can be solved or better managed.

American business schools largely grew from the demands of manufacturing, production, and logistics stemming from World War II, as well as from the post-war industrial expansion across all major categories of commercial business. These include steel, automotive, electronics, telecommunications, rail, aviation, lumber, textiles, coal, and oil and gas, among many others.

The concept of service industries, separate from manufacturing, also emerged from our post-war consumer culture. Those sectors include finance, real estate, insurance of all kinds, and digital communications.

Education is also a major segment of the services sector.

The size of the global education market is almost $8 trillion, with a cumulative average growth rate (CAGR) of over five percent. Over 70 percent of its funding comes from the government, and worldwide, education expenditure is about five percent of global GDP. That puts it in line with major industrial and infrastructure GDP categories, including agriculture and technology. In the U.S. alone, it is $1.5 trillion, and is expected to double to over $3 trillion by 2030. Some estimates put global education at $10 trillion by 2036.

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In the U.S., our higher education sector, made up of colleges and universities, numbers about 6,000. Every state in the country is full of a mix of collegiate institutions and research universities. The major population and GDP centers, such as New York, Illinois, Texas, Florida, and California, each host hundreds of public and private universities. New York has over 300, and California has almost 500. The geographic size of all these combined campuses is staggering—in the millions of acres—and together they represent a national factory system that rivals steel, automotive, and food processing.

In addition to the more traditional forms of our educational complex, including buildings, classrooms, professors, and libraries, as well as academic subject divisions with a sprawling bureaucracy of deans, chancellors, provosts, and vice presidents, there is technology. In some ways, it is now much more than just a part of this complex: it is beginning to replace the complex and become itself its own education empire.

Investment bank Morgan Stanley calls it “Global Education’s $8 Trillion Reboot,” and it sees the education technology sector as a disruptive investment category, claiming that:

education is experiencing the biggest evolution since the printing press was invented in the 15th century. The use of technology in education allows faster spread of information … and enables a myriad of new methodologies that improve the quality of learning, [making] the educational system more efficient and less costly.

So, given this incredible scale in terms of GDP, expenditure, and revenue, real estate operations, technology, and even national security work in nuclear energy, biomedical technology, aerospace engineering, nanotechnology, molecular research, and more, how is it that college professors effectively run this system?

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Put another way, how could it be that a global industrial sector this significant could have coasted along without developing a strong culture of independent management expertise? Some may claim that it does have its own expertise, but it seems that the expertise is really about protecting an insulted, centuries-old system, and in the process has become one of the most bloated, inefficient, and unprofessional corporate structures among any, outside of government itself.

Moreover, why does the White House even have to step in to tell universities how to manage themselves? Why can’t they manage themselves better?

Perhaps that is the key to understanding the problem: education is a formal government business. This partly explains why the new White House initiative to challenge its practices—and its costs—is resulting in such defensive and resistant administrative hostility, including university class-action lawsuits. Why aren’t university executives instead standing up and openly embracing legitimate questions about their costs and methods? If these were corporations with actual shareholders, they would be forced to. As government businesses, they merely bargain within the larger government umbrella, primarily through veiled threats, and unscrupulous appeals to personal safety and health.

Because the university is accustomed to operating without hard, formal accountability, it is fighting by a combination of resistance, and especially, private negotiation on a single university basis: it’s “every man for himself” in university management these days, as they have no actual collective industry instincts, except through organized labor and unions where administration merely follows the “collective bargaining” tactic as a university management model.

The way universities are organized into departments exacerbates this problem by turning the political bargaining behavior inward: departments compete with each other over budgets and funding, and even within each department, there are internal political rivalries over promotion, teaching loads, and graduate students, who also compete for their own union representation. All of this comes from poor management, lack of strategic direction, and undisciplined indulgence in the “academic freedom” model of behavior.

“Today we are trying to spread knowledge everywhere. Who knows if in centuries to come there will not be universities for re-establishing our former ignorance?” —Georg Christoph Lichtenberg (1742-99)

Clifford Ando, a senior faculty member at the University of Chicago and the Robert O. Anderson Distinguished Service Professor of Classics and History, is a thoughtful critic of university financial management—particularly as it affects academic department priorities. In a recent Chicago Maroon article, he expressed concern that the school’s administration may try to appease federal critics by cutting a deal, rather than standing firm in defense of academic values. In an email to me, he wrote:

I don’t dispute in the slightest that universities are inefficient. Major reforms are needed. Indeed, one of the things that I find most frustrating about the University of Chicago specifically but also about the sector as a whole, is the likelihood that contemporary leadership is likely to respond to the events of this year by seeking to negotiate a merely revised version of their former way of life.

This is an important viewpoint because it reflects the general management culture of universities: their response to external probity, rather than being structured around a particular problem as a management objective for improvement, consists instead of a political maneuver as a counterparty in a larger political system.

That may seem obvious as universities are government financed and regulated, but so are many domestic infrastructure organizations including complex energy utilities, international airports, ports and water systems, and much else, where the same claims to public welfare can be made, and where the management function is often—by no means always—more professionally trained and accountable as public systems. Yet universities, with the same public sources of funds and the same conceptual basis in the microeconomics of efficient resource allocation, operate much differently, for no apparent rational reason.

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The university is a fascinating economic enterprise in this regard, because it serves as a collection point or aggregation center for thousands of individuals, each with their own interests and wants, while at the same time, it seeks to exist as a superbly controlled, nearly authoritarian institution. Could all these individuals in their individual preferences—students, faculty, and researchers—somehow together exhibit rational collective decisions that result in a social welfare function that reflects a desired social state in a university social society?

This perceived risk is precisely why universities operate as highly organized social institutions with extensive rules and centralized, top-down administration. Otherwise, why do universities even need administrators? What actual purpose do they serve, except control and political perpetuation?

Nobel economist Kenneth Arrow put it this way:

If we exclude the possibility of interpersonal comparisons of utility, then the only methods of passing from individual tastes to social preferences which will be satisfactory and which will be defined for a wide range of sets of individual orderings are either imposed or dictatorial.

This leads to a profound paradox in our higher education system, and why it continues to have deep, unresolved managerial problems. 

The modern university, on the one hand, operates on the “Summerhill School” model, where students are in complete control of a libertarian student learning environment. On the other hand, it also follows a corporate training model of programmed instruction in highly ordered and arranged modules delivered in a mass-market distribution format—which is essentially what the modern university does. Not surprisingly, the academy views the “corporatization” of learning not as a phenomenon related to government influence and regulation, but as interference from “private equity.” This idealism, combined with hostility toward capitalist management, contributes to the effective “split personality” of higher education.

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Because the university tries to hold out both of these social models and appeal to both individual and collective ideology and interest, its administrative function is forced to straddle an awkward deception of classical liberalism combined with institutional corporatism, both tied to a political function, and with no actual recognized source of equity or shareholder accounting. This means that the university administration function will always seek its most convenient “saddle point” or equilibrium resting place, where it neither recedes nor advances, but simply stays the same, in a state of rest. This results in a university management culture that can’t realize individual leadership potential: it neither breaks from the past, nor risks the future. It turns the university’s fate over to political circumstance, outside institutional steering, and collective safety. It makes choices by not making them. This also helps explain why universities are often sites of constant political activism and social infighting over ideological differences. No one is leading. The university in the meantime claims to be a source of academic freedom and free speech behavior—but only so far as it does not interfere with and alienate government grants and corporate and foundation donors.

This includes a ready willingness to tolerate regimes such as communist China, as long as they send over money, pay tuition premiums, and finance research. But the leakage of U.S. intellectual property through the university system is a direct function of university management that will always seek revenue from wherever it can get it, and rarely look at how it can first operate more efficiently: in this way it is exactly like government, and exactly like a political party that will give away technology, secrets, and security, in exchange for campaign financing (such as the Clinton administration did by giving the Chinese our guided missile technology in exchange for donations). Some have called this the “treason of intellectuals,” but it becomes “treason on steroids” when intellectualism is mixed with political ideology and operating as an active component of a society.

This strategy can persist for a long time, until the money runs out, foreign students opt to stay home and receive education in their own countries, the larger domestic political system undergoes a permanent shift toward education privatization, or the law finally intervenes. But like all industrial service sectors, the customer is the ultimate source of viability. We can’t force young adults to attend college or incur debt with easy money that is eventually exhausted, as the student tuition debt machine effectively does. At that point, and at that point only, the management function may become a more serious university undertaking.

Unfortunately, like government, improvement is never voluntary: it finally happens when there are no more options, or when there are no more choices.

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