Monday, November 20, 2006

Universities, Entrepreneurship and Economic Growth: A Must Read from Carl Schramm

By Richard Vedder

Carl Schramm has written a nice new book, The Entrepreneurial Imperative. To Dr. Schramm, who is president of the Kaufman Foundation, the key ingredient in American economic exceptionalism is entrepreneurship. He also argues that universities have a key role to play in fostering entrepreneurship, but that they do a bad job of it today. I could not agree with him more.

There are several dimensions to the problem. The one that CCAP is focusing on is the university as an economic enterprise in its own right --its efficiency, its innovativeness, its ability to change with the times, etc. The University, seen in this light, has stifled entrepreneurship far more than it has encouraged it. To my mind, the non-profit nature of institutions and the massive third party payments have insulated colleges from making bad decisions, allowed them to coast, and shielded them from some of the consequences of competitive markets.

In a competitive market, people fail -- and learn from their mistakes. Market signals tell us who is successful, and who fails. What are the equivalent of market signals in higher education? We cannot even agree on what our output is, what it should be, or how it should be measured. Schramm has interesting statistics on the turnover rate in the Fortune 500 list. What about a Fortune 500-like list of 500 largest universities? What is the turnover rate? (answer, very little). The entrepreneurial spirit is not as alive as it could and should be, and one thing I stay awake at nights thinking about is: how can we change that? How can we bring Schumpeterian "creative destruction" to the academy? The for-profit universities are one option, but they do not engage in the research activities that are an important dimension of expanding economic as well as academic frontiers.

Whiz Kid Jonathan Leirer and I, with some help from my colleague Professor Tony Caporale, have been rather exhaustively looking at the relationship between government spending on higher education and economic growth -- while the research is still ongoing, to this point we usually get negative relationships --more spending lower growth. Taking tax money from the entrepreneurial private sector and giving it to the non-entrepreneurial university sector on balance is counterproductive. It should not be that way.

Perhaps Dr. Schramm and I, two like minds, can form an alliance to explore this issue in greater detail.

There are other dimensions of the university/entrepreneurial relationship that Dr. Schramm explores --university research efforts and the ownership of intellectual property rights, for example, or the teaching/non-teaching of entrepreneurial characteristics in universities. He also reaches the same conclusion I do about colleges of education -- they are a disgrace, and need to be eliminated. Above all, Schramm correctly notes the anti-business attitude in the academy. All in all, this is a very good read that I am pleased to recommend.

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