Mitch Daniels and the business of education at Purdue

If you throw a bucket of chum into shark-infested waters, you shouldn’t be surprised to see it quickly disappear.  Likewise, if you flood a bureaucracy with easy money, you shouldn’t be surprised when the result is a bloated administrative class complaining about a lack of funding.  That’s the story of Big Government, and it’s also the story of Big Education.  Student loan debt has ballooned in tandem with tuition fees, but the actual cost of producing education is relatively flat.  The money is disappearing into administrative overhead, as tuition grows to gobble up all that delicious student-loan chum.

The adventures of Indiana’s onetime Republican governor, Mitch Daniels, in his new job at Purdue University have been instructive in this regard.  Daniels got right down to business, as the Wall Street Journal chronicles, beginning with an anecdote about his discovery of some suspicious “cash” items splattered across the university balance sheet:

Mr. Daniels suggested the rainy-day funds, which totaled “somewhere in the mid-nine figures” and were kept by a host of academic departments for operating expenses, be moved out of low-interest-bearing accounts and put to better use.

It was the first of many steps Mr. Daniels has taken as he seeks to reorganize Purdue’s sometimes-antiquated systems. A year and a half into his tenure, Mr. Daniels has frozen tuition (for the first time in 36 years), cut the cost of student food by 10% and introduced volume purchasing to take advantage of economies of scale.

In May, he rolled out the first results from a Gallup poll of 30,000 college graduates from hundreds of schools aimed at discerning what value a university education adds to a person’s success and well-being. The results have shed new light on a question that has moved to center stage in higher education: What is the real return on investment for a college degree?

With the poll, the former two-term Republican governor of Indiana is drawing a line in the sand against which U.S. higher education can be measured. And by freezing tuition, he is forcing his own school to modernize its 19th-century business model with a combination of systemic cuts, organizational realignments and cash incentives.

“This place was not built to be efficient,” Mr. Daniels said when asked about the structural changes he was making at Purdue. But “you’re not going to find many places where you just take a cleaver and hack off a big piece of fat. Just like a cow, it’s marbled through the whole enterprise.”

Between my shark analogies and Daniels’ livestock analogies, we just might be getting somewhere.  Jamie Merisotis, the president of the foundation that helped produce that Gallup poll of college grads, praised Daniels for understanding that “higher education has to evolve to serve the nation’s needs.”  Generally speaking, business enterprises are far better at such evolution than hidebound bureaucracies.  The Journal piece mentions Daniels getting in hot water with Purdue faculty because he said nasty things about left-wing historian Howard Zinn when he was governor.  Organizations don’t get more hidebound than that.

Here’s a little statistic that gives an idea of just how much fat is marbled through the Purdue cow:

“A [tuition] freeze is nice but it seems to me the goal should be to chip away at some of costs that have made tuition go up,” said Bekah Ticen, a 22-year-old English major who just graduated and is one of eight children of an Indiana factory worker. Even with Mr. Daniels’s efforts, “tuition has gone up $1,000 a year since I’ve been here,” she said. “Where is it all going?”

Most covers diminishing state subsidies. Mr. Daniels cut millions from state higher education as governor, but millions more pay for the administrative salaries that have ballooned at Purdue, along with most universities around the country. At Purdue, there are now 75% more administrators and staff on the payroll than there were 13 years ago.

Does anyone really believe, in this era of hyper-advanced information technology, that it takes 75 percent more administrative overhead to manage a university than it did in 2001?

The further consumers are separated from paying for a product, the higher that product tends to float above the harsh efficiency of the free market.  Consumers inevitably come to miss that harsh efficiency, but unfortunately the political class is very good at persuading them to accept the seemingly easier solution of separating vital goods from the marketplace even further.  That’s how it went down with health care reform, and that’s how higher education has been working.  In both cases, ballooning costs offset by government subsidies (and subsidized loans) combine to create a system of dependency that proves very useful to the political class.  What could be better than a generation of students buried under six figures in debt, incurred to purchase diplomas they have been taught to view as the admission ticket to middle-class life, struggling to make ends meet with low-paying jobs in the part-time workforce of Obama’s transformed America?  That’s a perfect storm of people who believe themselves entitled to whatever relief the political class throws their way, such as little breaks to the interest rates or repayment terms of those student loan debts.

Daniels’ notion of computing the actual market value of higher education may seem like blasphemy in the faculty lounge, but let’s remember that leftist rhetoric treats education as a market resource too.  You’ll never hear a liberal speech about education that doesn’t describe it as the ticket out of poverty.  For most people, it is indeed very difficult to escape poverty without a quality education… but this is a frankly materialist critique, which means we have to be flinty-eyed about what “quality” really means.  It’s a function of both effectiveness and price, is it not?  People who don’t already hail from wealthy backgrounds cannot afford the luxury of an overpriced diploma that yields relatively little benefit in the job market.

Such an analysis cannot be completed without looking at the job market, of course.  It does society little good to produce an expensive stream of college graduates who can’t find jobs.  Sad to say, but at the moment many of the indicators for the true market value of the commodity of college education are pointing down, but the price just keeps going up and up.  When that happens to a corporation’s product, stern efforts to cut extraneous expenses and bring down the price are a matter of survival.  So it must go in the business of higher education, which has been allowed to pretend it’s something other than a business for far too long.