Whose Head Is Going to Roll at UCSD?

By Richard Vedder

It is rare for a goof at an individual college to make the first half hour of the Today Show on NBC, but the University of California at San Diego succeeded in doing that this morning. In one of the more stupendous mistakes perpetrated in modern times, UCSD managed to send 30,000 emails to students announcing they had been admitted and inviting them to a new student orientation event. In fact, the emails went out to rejected applicants, many of whom had previously received letters of rejection. That is right up there with my own university's goof in not creating firewalls in its information systems, allowing hackers to get 200,000 or so social security numbers.

Human error. If everyone were perfect and all-knowing, life would be more orderly and predictable, but also more banal and boring. Imperfections are at the heart of the human condition, and religions evolve to deal with the implications of those imperfections on our psyche and souls.

Nonetheless, when someone does something bad, they usually are punished, and when they do something good, they are rewarded. Both the rewards and punishments tend to be very muted in the not-for-profit university sector relative to what happens in private business (including, I suspect, higher education business). What will happen to those responsible for the UCSD mess? At the very most, they will lose their jobs, probably with some severance pay. They might well merely be given a mild tongue lashing. Contrast that to the private sector, where such a goof might lead to stock prices falling 10 percent, the Attorney General of some state announcing an investigation, etc. Chances are the punishments will be quicker and harsher.

The same applies in reverse. If a professor wins the Pulitzer Prize or Nobel Prize, enhancing an institution's reputation, he or she is given some praise, maybe a slightly larger raise than usual --that's it. If an entrepreneur comes up with a new idea that sells millions of widgets, she or he likely gets a bonus measured in the hundreds of thousands of dollars, perhaps a big promotion, etc.

The muting of payments and punishments for good and bad behavior is aggravated by the fact that we cannot measure performance well in traditional higher education; by contrast, I can say to the nearest one-hundredth of one percent how the market capitalization of the University of Phoenix (Apollo Corporation) changed yesterday. Incentives to succeed are small and success is hard to measure; in traditional market capitalism incentives are huge and outcomes relatively crystal clear.

It occurs to me that President Obama wants to make actors in the American capitalistic drama less accountable for their actions, much as the case in universities. Buyers of huge homes purchased with small down payments who cannot make their mortgage payments used to go into foreclosure and bankruptcy; Obama would delay that. Companies like AIG that would usually go bankrupt are allowed to hang on. Question: Should the economy be moving towards the university model, or should the university model be moving towards the competitive market capitalism model? I think our national prosperity is better attained by the latter approach (universities becoming more competitively market oriented). Stay tuned.