Rent Seeking Grows as Rome Burns

By Richard Vedder

The country has been suffering a significant financial crisis, and is slipping into recession. Iconic companies like Lehman Brothers and General Motors have entered or may soon enter bankruptcy. People are postponing retirement because of drastic declines in their pension portfolios. Tuition fees and college loan burdens are soaring. But one group is laughing all the way to the bank: university presidents.

The Chronicle of Higher Education's annual survey of public university presidents is out. The median salary of the surveyed schools rose 7.6 percent in the past year, vastly more than the inflation rate, even more than the tuition inflation rate, and certainly dramatically more than the compensation given to those who perform the core functions of teaching and research at our nation's institutions of higher education. To be sure, these increases were approved before the financial crisis hit. Nonetheless, they are consistent with the cynical view that the complaints of university leaders about inadequate funding may be just as much about shifting resources from taxpayers to their own personal pockets. This is "rent seeking" gone amuck.

We have previously reported on the huge increases in pay given to Gordon Gee, the cheerleader, comedian, fund hustler and administrator who runs Ohio State. He tops the Chronicle list of public university presidents. But the new survey shows some interesting comparisons that make no sense. Why does Charlie Reed, who heads the biggest university in America (the Cal State system) and is an extraordinarily able administrator, make 20 percent less total compensation than the head of the Kentucky Community and Technical College system? Why do the presidents of the University of Illinois system (Joe White) or University of North Carolina system (Erskine Bowles) or the University of California at Berkeley (Robert Birgeneau) make less than half as much as the president of lower ranked Ohio State?

Good leaders need to be compensated, and nationally the pay differential between people at the top and those in the rank and file have risen over time. Market conditions may require that major university presidents need to be compensateed enough so that they can live at least as well as successful doctors and lawyers. For most presidents, that might mean a salary of $300,000 a year plus a few perks, like a house and a car. But 15 public university presidents earn total compensation of $700,000 or more a year --way beyond that figure. Trustees say "we have to pay that or lose our prez to Competing U." Don't be surprised that public indignation to all of this may lead to a crackdown from legislatures, Congress (already Chuck Grassley has shown concern), state coordinating boards, etc. Congress, in a populist egalitarian mood with strong liberal Democratic control, might decide that tax exempt institutions should not pay employees more than twice that of the President of the United States.

What goes up often comes down. Hubris and greed were the topics of great Greek tragedies, and the lessons of 2,400 years ago apply today.