Democracy and Credible Commitment in Universities

22 December 2010 at 9:54 am 4 comments

| Nicolai Foss |

In 2003, Denmark enacted what is the easily the least democratic university legislation in the world (the North Korean one may be less democratic). Essentially, faculty voting rights are now limited to selecting members of an “academic council” which mainly serves as a quality check on candidates for evaluation committees and as a body that offers advice to the university president and the deans. A board of directors (with a majority of external members) appoints the president, the president appoints the dean, and the dean appoints department heads.

This truly major change was partly motivated by the various inefficiencies of the earlier, much more democratic conditions. However, as autocratic systems also have well-known inefficiencies, the question is whether Denmark let the governance pendulum swing too much toward the opposite end. My colleague Henrik Lando directed my attention to a truly excellent paper by O&M guest blogger Scott Masten that is directly relevant to the understanding of this issue.

The paper is “Authority and Commitment: Why Universities, Like Legislatures, Are Not Organized as Firms.” Masten builds on political economy insights that the primary function of political organization is establishing credible commitments rather than Arrowian preference aggregation. The importance of commitments derives from surplus-increasing political bargaining potentially being subject to opportunistic renegotiation by rulers. According to this theorizing, constitutionally based democratic rules make it easier to make commitments (e.g., to respect private property) credible, for example, because they define the limits of authority in contrast to the unconstrained whims of the autocrat. (Some libertarians will wish to take issue with this argument). 

Masten applies this idea to an academic context. While he admits that democratic governance is challenged by size and heterogeneity, he also argues that such governance has distinct advantages with respect to facilitating coordination and deterring appropriation attempts from the top — and these advantages are increasing in the heterogeneity and immobility of faculty. Thus, democratic governance should be more prevalent in research universities than in, say, liberal arts colleges. Masten uses data from a 1970 survey on the allocation of decision rights in 800+ US universities and colleges to test the theory. His results show “democratic governance to be more prevalent in larger, ‘full-service’ research universities than in smaller liberal arts colleges and special-curriculum institutions. State- and church-affiliated institutions, meanwhile, tend to be governed more like firms.”  

I interpret Masten’s results as an indication that Danish legislators got it wrong back in 2003. And I strongly recommend his paper to anyone with an interest in political economy and the theory of the firm. While some work has emerged that handles the theoretical intersection of these two streams, there is very little empirical work in this area (but see this paper and  this one).

Entry filed under: - Foss -, Education, Institutions, Myths and Realities, Papers, Recommended Reading. Tags: .

Razors, Blades, and Bugattis Happy Holidays

4 Comments Add your own

  • 1. Scott Masten  |  22 December 2010 at 12:06 pm

    I have been AWOL as guest blogger, I’m afraid, caught up in the end of semester crunch. (My final exam was yesterday and I have 160 exams to grade. I tried voting to get rid of exams but it was vetoed by the administration.) But for obvious reasons, Nicolai’s post caught my attention. Thanks for the plug! And, in case I don’t manage to get a post up beforehand, Merry Christmas to the O&M proprietors and readers!

  • 2. k  |  23 December 2010 at 11:57 am

    At 2.58 am the venezuelan assembly in a lame duck session approved a Universities law. The vote is extended to everyone. In my University it means the electoral body will be :
    120 k alumni . 55 k students. 5k workers. 5 k employees and 4.6 k professors ( now , academics workers).Of course, workers and employees are in ecstasies , they want to work less the 3 or 4 hours they are present at “work” and force the authorities to pay for not working.
    The socialism is the goal of education. There will be no other option or view.
    And the Minister of superior education( he needed 16 years to finish a 5 years career.) will be President of every University in the country.
    The main drafter are University professors.
    This was the answer of the government to critics :(NSFW)

    http://lapatilla.com/site/2010/12/23/la-gn-reprimiendo-a-los-estudiantes-foto-impactante/

  • 3. Scott Masten  |  23 December 2010 at 1:07 pm

    It is perhaps worth pointing out that democracy’s role in my analysis of university governance is analogous to the purpose of political democracy as envisaged by Montesquieu, James Madison, and Alexander Hamilton: a means for constraining arbitrary government actions and securing property rights and individual liberty. America’s Founding Fathers recognized the risks both of unconstrained government power and of majoritarianism. The unfortunate people of Venezuela are suffering the consequences of the failure of Venezuela’s institutions to forestall those risks. Alas, the actions described in k’s comment depict the perversion of democracy for authoritarian ends. My sympathies to the Venezuelan defenders of liberty and property.

  • 4. Le nuove regole per l’università  |  23 December 2010 at 3:48 pm

    [...] Nel giorno dell’approvazione definitiva della legge sull’università italiana vale forse la pena allargare gli orizzonti della riflessione, considerando che i sistemi di governance delle università variano molto nel mondo e spesso si evolvono nel tempo con una traiettoria pendolare… :  democracy-and-credible-commitment-in-universities [...]

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Nicolai J. Foss and Peter G. Klein, Organizing Entrepreneurial Judgment: A New Approach to the Firm (Cambridge University Press, 2012).
Peter G. Klein and Micheal E. Sykuta, eds., The Elgar Companion to Transaction Cost Economics (Edward Elgar, 2010).
Peter G. Klein, The Capitalist and the Entrepreneur: Essays on Organizations and Markets (Mises Institute, 2010).
Richard N. Langlois, The Dynamics of Industrial Capitalism: Schumpeter, Chandler, and the New Economy (Routledge, 2007).
Nicolai J. Foss, Strategy, Economic Organization, and the Knowledge Economy: The Coordination of Firms and Resources (Oxford University Press, 2005).
Raghu Garud, Arun Kumaraswamy, and Richard N. Langlois, eds., Managing in the Modular Age: Architectures, Networks and Organizations (Blackwell, 2003).
Nicolai J. Foss and Peter G. Klein, eds., Entrepreneurship and the Firm: Austrian Perspectives on Economic Organization (Elgar, 2002).
Nicolai J. Foss and Volker Mahnke, eds., Competence, Governance, and Entrepreneurship: Advances in Economic Strategy Research (Oxford, 2000).
Nicolai J. Foss and Paul L. Robertson, eds., Resources, Technology, and Strategy: Explorations in the Resource-based Perspective (Routledge, 2000).

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