Friday, March 23, 2007

Higher Education Summit II: Costs

By Richard Vedder

Before the task force on "Enhancing Affordability, Decreasing Costs, and Promoting Productivity" even got started talking at the Education Summit yesterday at the Willard Hotel in DC, Eric (Rick) Hanushek, one of America's foremost educational researchers, made the important point: affordability and cost reduction are not at all closely related. The costs to students and the costs to society of an education diverge dramatically, and these are simply separate issues. Rick, as always, had a good point, but that did not deter the group from proceeding.

Lots of good, if not revolutionary, things came out of the conversation. We favored aligning K-12 and college education much more, promoting dual enrollment courses, advanced placement and the like. The senior year in high school is not very productive academically, particularly for gifted students. Another good idea is to work for common course design in survey courses, trying to reduce duplicative costs in teaching the basics. The problem, of course, is that faculty members resist such ideas. Therefore, another great idea (which I promoted) proposed changing incentives. For example, if Professor X teaches all Principles of Economics students in state universities in Illinois by interactive television/Internet, and that saves X dollars, that a fraction of X be given to promote faculty interests (maybe in the form of salary) amongst the impacted faculty. It was also emphasized that cost reduction does not equate necessarily with efficiency. Productivity improvement requires cost reduction per unit of outcomes of comparable (or better) quality -- there is both a qualitative and quantitative dimension that requires consideration.

Not everything suggested appealed to me. Both Rick and I were concerned about ideas of suspending anti-trust laws for universities, ostensibly to allow them to work together to cut costs. Both of us still believe that competition at arms length between varying providers is far more likely to serve consumer welfare than colluding at professional meetings. Yet there was a statement about suspending anti-trust laws in the document going forwarded to the Secretary of Education.

1 comment:

TC said...

"It was also emphasized that cost reduction does not equate necessarily with efficiency."

This is an interesting statement. In the private sector, my idea of cost reduction without productivity improvement is mostly necessitated by market influences and competition. Within this scope, such cost reductions are somewhat "punitive" and act as dis-incentives to the workforce. An example of such cost reductions would include layoffs, reduction in benefits, salary reductions, and the like.

I don't know if this is what you are eluding to, but it is what comes to mind when I think of when reducing costs without productivity gains.

I agree with what I consider a really good definition of productivity improvement - "Productivity improvement requires cost reduction per unit of outcomes of comparable (or better) quality -- there is both a qualitative and quantitative dimension that requires consideration."