[The following is from former guest blogger Peter Lewin, who wrote his PhD under Gary Becker at Chicago.]
| Peter Lewin |
Professor Gary Becker died yesterday at the age of 83. At the time of his death, he was arguably the most highly respected living economics scholar.
The blogosphere will soon be flooded with obituaries, appreciations, and evaluations of his work by people better placed than I to offer them. Given, however, that I was privileged to have been able to study with him for a short period of time as a graduate student at the University of Chicago, and that he acted as the chairman of my Ph.D. dissertation committee, I would like on the occasion of his passing to offer a few words of personal appreciation.
Becker will be remembered mostly for his work on human capital and the economics of the family. It is hard to overstate the influence of his contributions to these fields. Indeed, he pretty much created them — though one must not minimize the contributions of others early scholars like Simon Polacheck, and especially the independent and complementary work of Jacob Mincer.
By his own account, Becker came to these subjects through the influence of his mentor Milton Friedman whose approach led him to see economics as the study of people “in the ordinary business of life” (as Alfred Marshall would have it). But his first foray beyond the traditional borders of the subject was not in those subjects (human capital or the economics of the family) but rather in the economics of discrimination, a very volatile subject at the time. He literally wrote the book on The Economics of Discrimination (see also here). It seemed to him at the time that the conversation on civil rights and segregation was hopelessly confused by the lack of an understand of the social processes at work, an understanding that was accessible using the eternal principles of economics to investigate how people act on their preferences, whatever they are and whatever we may think of them. So he quite controversially investigated the likely results of economic processes in which people had given (race or gender) preferences and showed quite simply that, as long as people were free to act in open markets as employers, workers, or consumers, the act of discrimination would carry a price. For example, discriminator-employers who indulged their preferences who be outcompeted by those who hired the most qualified person for the job, and, in this way, open competition would tend to erode discriminatory outcomes (if not discriminatory attitudes). (more…)
| Peter Lewin |
After a most enjoyable and productive tour as a guest blogger on this site (at least for me), the time has come to say goodbye.
I do so at an auspicious moment, having just received my copy of Organizing Entrepreneurial Judgment. This book brings together important work by two of the hosts of this site in a very accessible format that promises to spread their message to many who have yet to hear it. To understand the firm one must understand entrepreneurship and vice versa. We live in a dynamic world in which individual judgments concerning the value of resources and the path of future events play a key role and organizational structures develop to give traction to those judgments. For an unrepentant Austrian subjectivist like me it is all very exciting. I look forward to observing further developments as an observer and casual participant on this blog, and elsewhere.
I would like to warmly thank the hosts of this blog Dick, Nicolai, Lasse, and Peter for extending to me the invitation to participate and look forward to ongoing productive associations with all of them.
| Peter Lewin |
Since it hasn’t been mentioned here yet, I would like to take the liberty of recommending a great “how it all fits together” article by Dick Langlois forthcoming in the Review of Austrian Economics, entitled “The Austrian Theory of the Firm: Retrospect and Prospect.” I just reread it with great pleasure (I saw it a few years ago at a seminar). With characteristic Langlois ease (or so it seems) Dick weaves the connections between Coase, Hayek, Lachmann, Richardson, Pensrose, Chandler, Foss, Langlois, and others to provide a very clear picture.
| Peter Lewin |
The second review article in the latest issue of AMR by Venkataraman, Sarasvathy, Dew, and Forster (VSDF) is more ambitious than the first by Shane, discussed in Part 1. In fact one might describe the ambition motivating the article as grandiose. VSDF “seek to recast entrepreneurship as a science of the artificial” an entirely new way of looking at entrepreneurship in the interest of uncovering (what I take to be universal) principles that can serve as the basis of a new empirical and policy-useful science of entrepreneurship. [I see this article as a companion piece to the article by Sarasvathy and Venkataraman (SV) in ET&P January, 2011, in which this grandiose vision is even more apparent.]
The science of the artificial(supposedly a distinct category of science from natural or social science) is derived from the work of Herbert Simon (1996).
As a theory develops it splits into two streams: (1) “basic” research that continues to refine the causal explanations and (2) “applied” research that seeks to alter the variables of explanation. At that point the phenomenon of interest has become an artifact. …
A science of the artificial is interested in phenomena that can be designed [and controlled]. … Design lies is the choice of the boundary values; control lies in the means to change them. (24).
So a useful theory is itself an artifact something that can be used to understand and (importantly) control aspects of the (social) world. And, I suppose, the new science of entrepreneurship will eventually develop such artifacts. [At the end of the article they talk about “recasting opportunities as artifacts” – so I am not sure how this is all connected.]
My lack of expertise regarding the work of Herbert Simon (something which I am now more encouraged to remedy) prevents me from pronouncing with confidence on this part of the article. Suffice it to say that the meaning and contribution of this new “science of the artificial” is far from clear to me. I am left with a feeling that if it is indeed such an important and path-breaking meta-scientific turn, the authors should be able to explain it better. It should be more accessible and transparent. I am left highly skeptical, but I urge readers of this post to read the article and perhaps enlighten me and others. (more…)
| Peter Lewin |
The January 2012 issue of the AMR (available here for subscribers or those with academic access) features two review articles assessing the progress of the “Promise” examined in the well-known article by Scott Shane and Sankaran Venkataraman (AMR 2000: The Promise of Entrepreneurship as a Field of Research) — one from each of the original co-authors. The first is an interesting, if somewhat pedestrian, article by Scott Shane. The second is a much more profound and ambitious contribution by Venkataraman together with Saras Sarasvathy, Nicholas Dew, and William Forster.
In the decade since that article there has, indeed, been a significant shift in the focus of research in entrepreneurship. Most notable, perhaps, is the focus on entrepreneurial “opportunities” — familiar to Austrian economists from the work of Israel Kirzner, but by now a standard element in the story. Each of the articles spends considerable time revisiting questions about the nature of entrepreneurial opportunities and provides its own resolutions. Here I will provide just a quick overview of this part of Shane’s article. (I intend to provide one for the second article soon).
In considering the “nexus of opportunities and individuals” offered originally in “Promise” as a reason to shift attention from the person to the function, Shane addresses the question of whether entrepreneurial opportunities should be considered “objective” or “subjective” — a question that has proliferated in this research stream, albeit with varying focus and terminology. The problem is, it seems to me, that the notion of “opportunity” is one that depends on the formation of a mental image by some individual or individuals. Opportunity implies plan — a plan of action to use, transform, combine, existing resources in a profitable way. Without the plan there is just the world. So how can “opportunity” be objective? This is related to the question: are opportunities “discovered” (Alvarez and Barney: Organizaҫões em Contexto, 2007) or are they created; or in the words of Venkataraman, et. al. are they made or found? (more…)
| Peter Lewin |
I am not sure if this book has already been review on this blog space — I haven’t seen it. Similarly, I haven’t seen any other reviews, so these are my fresh impressions. The book is Keynes Hayek: The Clash that Defined Modern Economics by Nicholas Wapshott (W. W. Norton: 2011).
With the growing interest in Hayek as the antidote to the resuscitated Keynes, this book is timely providing for the reader lively insight into the life and times of these two key individuals. In terms of the details of the lives of Keynes and Hayek the book appears to be well researched. I learned a few things from it — interesting details about events and personalities. On Keynes particularly one gains a sense of the power of the man and how a whole generation of economists at the LSE and Cambridge were won over by his revolutionary vision. Though Wapshott provides a lot of material on Hayek, I could not fight the impression that it was Keynes who captured his interest (and admiration?) most. Hayek is presented in all of his aspects, including the not so wholesome ones. The picture of Keynes seems less forthcoming, or differently spun to cast a more favorable light. But maybe that is just me and my biases.
When it comes to the economics, however, the case is much clearer. Wapshott is very weak on this part of the story, especially when it comes to Austrian economics. He is able to do a fairly good job of Keynesianism, again positively spun — including the story of multiplier. It adds to the plausibility of Keynes’s appeal. But when it comes to explaining the essence of Hayek’s opposition, his treatment is very inadequate at best and complete wrong at worst. Like Keynes himself, Wapshott does not understand capital theory and the time structure of production. So he gets the story of the business cycle wrong. He simply parrots in a formulaic way the ingredients of Hayek’s case. His treatment of Mises is almost a caricature. He does not understand the nature of the Austrian turn from classical economics and has some misleading things to say about the concept of “value.” Likewise he does not understand the differences and similarities between the economics of the Austrians and the Monetarists and invents bogus differences. I found this part of the book frustrating.
So, the question in my mind is: do I recommend this book to my macro/money students? I think I probably will, with suitable warnings, just because it is such a vital and interesting story.
| Peter Lewin |
Who was the most significant entrepreneur in the bible (old Testament)?
I ask my students this trying to lead them to Joseph. As a result of his interpretation of Pharaoh’s dreams, not only he, but the whole of Egypt reaps enormous profit. He recognizes the meaning in the dreams and counsels Pharaoh on how to profit from impending misfortune — thus also alleviating the misfortune of many others (by investing in times of plenty to cover the looming famine).
But, thinking about this a bit more, one may argue that what we have here is a veritable entrepreneurial team. After all, it is Pharaoh who has the dream, the vision, though he needed Joseph to interpret it. One without the other was nothing — together they were everything. And then there is the fact that that Pharaoh exercises his judgment in believing Joseph. He takes a huge risk and elevates this lowly, condemned Jewish prisoner to the highest office. He puts aside his ego and courageously follows his better judgment. Surely Schumpeter should have been proud, no?
| Peter Lewin |
The October 2011 issue of the Journal of Economic Behavior & Organization is a special issue on the work of James Buchanan, guest edited by Pete Boettke, arising out of a recent FFSO conference. In addition to Boettke, the contributors are Kliemt, Marciano, Munger, Leeson, G. Vanberg, Voigt, Horwitz, Besley, Coyne, and Horn on a variety of topics. Amartya Sen and Elinor Ostrom contributed short appreciations. This issue is full of good stuff on a variety of topics.
I focus here on the lead article by Pete Boettke somewhat clumsily entitled, “Teaching Economics, Appreciating Spontaneous Order, and Economics as a Public Science.” For my part, this article alone makes the issue worthwhile getting. Boettke presents an overview of the many facets of Buchanan’s work (and as they developed over his career) helpfully connecting and contrasting it with Hayek. Some of these ideas are directly relevant to the organization and management context.
At the risk of distorting oversimplification, we may say that whereas Hayek concentrated on the problem of rationalistic hubris, Buchanan concentrated on the problem of opportunistic behavior. Both are inevitable and related problems of social systems, and each of their works thus complements the other. In a nutshell, each is an in-depth protracted examination of the knowledge problem and the incentive problem, respectively.
As points of emphasis in their respective works, Hayek concentrated on the limits on man’s knowledge at the abstract level, and the contextual nature of the knowledge residing in the economy at the concrete level, while Buchanan stressed the institutional/organizational logic of politics and the systemic incentives that different rule environments generate. In both, however, the central message of same players, different rules, produce different games is seen throughout their work in comparative political economy. To Hayek the puzzle was how to limit the rationalistic hubris of men, to Buchanan the puzzle was how to limit the opportunistic impulse of men. Both found hope in what they called a “generality norm” embedded in a constitutional contract — no law shall be passed, or rule established which privileges one group of individuals in society.
Hayek uses an evolutionary approach and Buchanan a “veil of ignorance” contractarian approach. But both are surely applicable to organizations of all types.
| Peter Lewin |
I should also mention that Bill Easterly gave the distinguished guest lecture this year on “Does Development Economics Cause Economic Development?” I thought it was excellent — both entertaining and informative — especially for non-specialists. I hope he publishes it.
Just one instance — a story about controlled random experiments in a development context (perhaps some of you have heard this). An interesting study showed that teacher absenteeism declined when teacher attendance was monitored and rewarded (imagine that). But when the same idea was applied to health-care workers, health-care workers in the treatment group (the monitored group) declined! Apparently, as a result of being monitored, health-care workers started asking for excused absences and found out that their supervisors actually did not care one way or another. As a result excused absences increased dramatically. This illustrates the power of unintended consequences and the importance of local knowledge, and how a seemingly unobtrusive experiment actually ended up providing locals with valuable knowledge that made things worse.
| Peter Lewin |
Back from the SEA meetings in Washington DC, the venue for our annual SDAE conference and membership meeting. At the annual banquet we honored Leonard Liggio for his contribution to the teaching of Austrian economics. Dick Wagner gave the presidential address. Both received a standing ovation.
The panels were well attended and, from what I could tell, the quality very high. I presented my paper on Entrepreneurial Paradoxes (which has been around for a while). Young Bak Choi commented on it and presented an interesting paper on the role of entrepreneurship in economic development and development policy. David Harper and Anthony Endres presented a paper on another variation on the theme of heterogeneous capital and its structure. Perhaps most interesting was a paper by a strategic management Ph.D candidate at York University, Mohammad Keyhani (co-authored with Moren Lévesque), on “The Role of Entrepreneurship in the Market Process: A Simulation Study of The Equilibrating and Disequilibrating Effects of Opportunity Creation and Discovery.” Randy Holcombe commented. Interesting that the issue of equilibration is considered important enough to investigate with simulations. But it raises some important questions. My own current view, having spent a lifetime contemplating the issue, is that we are no nearer an answer than we ever were, and that perhaps the more important distinction is between entrepreneurial actions that add value and those that do not.
Next year’s meetings will be in New Orleans. The president-elect of the SDAE is Larry White. He will be putting together the panels. So if you have an interest in presenting a paper, discussing one, or chairing a panel, let him know (email@example.com).
| Peter Lewin |
This coming weekend in Washington DC, the Society for the Development of Austrian Economics will hold its annual meeting and membership dinner. This year it is honoring Leonard Liggio for his contributions to the teaching and dissemination of Austrian Economics (through his dedication to the cause of classical liberalism) over many decades. A scholarship fund in Leornard’s honor will be established from the donations — the Leonard Liggio Fellowship Fund to enable graduate students to attend the full SEA/SDAE meetings each year at reduced cost. The Earhart Foundation and Liberty Fund are major sponsors. Table sponsors include the Cato Institute, the Institute for Humane Studies, the Review of Austrian Economics, the Mercatus Institute, the Atlas Economic Research Foundation and the Koch Foundation. See here for information on the panels organized by the SDAE. I will report on the event upon my return. (I promise for next year to ensure at least one panel dedicated to management themes.)
| Peter Lewin|
- Self-employment is a form of contractual relationship which, in certain circumstances, will have greater benefits to the parties involved than an employer–employee relationship. Government intervention, however, may make selfemployment artificially more attractive by raising the costs of employment relationships.
- Certain ethnic minority groups, older people and those without English as a first language tend to be overrepresented among the self-employed. This is partly because of the flexibility the arrangement provides but also because self-employment offers a ‘safety valve’ for those who find it difficult to find employment in the formal labour market.
- It is vital that businesses are not impeded from moving from a situation where the owner is self-employed without employees to a situation where the business has employees. There is evidence that businesses are impeded in this way. In just nine years to 2009, the proportion of micro-businesses with employees fell by almost one fifth. At the same time the proportion of self-employed with no employees rose rapidly.
- Women, individuals from certain ethnic groups, those with young dependants, those with low or no qualifications, those for whom English is not a first language and those who have recently experienced unemployment make up a much greater proportion of the workforce of small firms. For example, whereas 11 per cent of employees of small firms had no qualifications, only 4 per cent of employees of large firms had no qualifications.
- Some workers will prefer to work for small firms because of the greater flexibility they offer in their working practices. In many cases, however, small firms will employ people who are talented but who are not able to negotiate the more formal recruitment processes of larger firms. Micro-businesses therefore perform an important economic and social function – employing people who might be overlooked by larger employers.
- Genuine entrepreneurial insight and discovery tends to come from small firms. Entrepreneurship is crucial for economic growth. The nature of entrepreneurial insight is such, however, that we have no idea where it will come from – not even in the most general terms. Probably only one in every thousand ‘start-up’ firms will become one of the large businesses of the future.
- Policies to promote entrepreneurship must come in the form of removing impediments to business and should not involve the promotion of particular business activities. It is simply not possible for government intervention to pick this tiny number of winners. All government can do is create a climate in which entrepreneurship can thrive.
- The smallest firms are a key driver of job creation. Businesses do not start big. One quarter of employees working in firms that were established ten years earlier are working for firms that started from a position of employing only one person.
- The cost of regulation has grown enormously over the last fifteen years. This particularly affects small firms with employees because regulatory costs act like a ‘poll tax’. Wide ranging exemptions from employment regulation and the minimum wage would be appropriate for small firms. Such exemptions would have the additional advantage of allowing the government to ‘experiment’ with deregulation. Standard terms and conditions of employment could be drawn up which would ensure that employees clearly understood the exemptions. Radical reforms of the tax system would also assist small firms which experience much greater compliance costs than large firms.
- Moves by the government to promote entrepreneurship through the state education system or provide specific tax exemptions and reliefs for particular forms of business activity are wasteful or counterproductive.
| Peter Lewin |
I am reading an interesting new book from the Mises Institute — The Austrian School of Economics: A History of its Ideas, Ambassadors, and Institutions by two living Austrian authors, Eugen Maria Schulak and Hebert Unterköfler. I will leave the task of a full-blown critical review to experts in the history of thought, but a few passing observations might be of interest to this audience.
One might wonder about yet another history of the Austrian School, but there may be a genuine claim for value-added here, certainly in my case. For one thing, this is a translation from the German edition, so the majority of the references are in German. We parochial English speakers often proceed in isolation from important contributions in other languages. I was struck for example by the volume of work Carl Menger has done in German that has never been translated. And this is the case with all of the usual suspects.
As it turns out, this is particularly important in one case: the case of Schumpeter’s Theory of Economic Development — to which one of the short chapters is devoted. The one English edition that exists is a translation of an earlier German edition. So it fails to capture many aspects of Schumpeter’s later vision.
Many things derive from this early work, namely, Schumpeter’s entrepreneur, in its earliest incarnation (and its evolution in subsequent editions), the idea of the entrepreneur as the combiner of capital goods, and, of course, the notion of entrepreneurship bringing gales of “creative destruction.” The authors describe the development of the work through its various editions as Schumpeter matured as a scholar and became more confident, less nuanced, in his assertions. An example is his story of the business cycle — how the innovating entrepreneur was necessarily involved in “credit creation,” which thus precipitated a cycle (Richard Ebeling has recently done some interpretative work on this). At the time he first proposed this idea, he was vigorously criticized by Böhm-Bawerk and others — and our authors see this as the emergence of the first significant breech with the Austrian School. Dare I be so bold as to suggest that the contemporaries might have gotten it wrong, and, along the lines of Ebeling’s interpretation (reference below, also see my blog here and here), that Schumpeter may be understood more plausibly within a modern central bank institutional setting as hatching a variation of the Austrian Business Cycle story? (more…)
| Peter Lewin |
A recent issue of the Review of Austrian Economics (edited by Virgil Storr) honors the contributions of Don Lavoie who died at a very young age in 2001. It contains contributions by Storr, Boettke and Prychitko, Klamer, Chamlee-Wright, Horwitz, Lewis, and High. In addition, published for the first time is a seminal article by Lavoie on the interpretive turn in economics.
Lavoie was an audacious pioneer. Like many such pioneers he was ahead of his time. The newly re-emergent Austrian school was not ready for him — did not understand what he was about. Most of them either ignored Lavoie’s products (and those of his collaborators at the Program on Social and Organizational Learning — a center he co-founded with Jack High), or else marginalized him. To the latter his preoccupation with late Continental Philosophy and hermeneutics was seen as a real threat to doing social science. His young, loyal and creative collaborators were caught in the crossfire. After his death the furor simply died down.
With the publication of this issue it is possible to gain a fresh perspective (something Lavoie’s hermeneutics might have predicted). For me it is a case of “distance lends enchantment to the view.” I confess I was in the group who neglected his work for lack of sufficient understanding of its significance.
For management and industrial organization types Lavoie’s work is highly relevant. There is a growing appreciation of the connection between language, communication, meaning, action, purpose and organization — about which Lavoie’s approach has much to say, not to mention his prescient contributions on culture, modularity, and computer science. For those wishing to benefit from his work, unless you have an interest in the epistemology of Continental philosophers, I would suggest concentrating on the contributions that have to do with information, knowledge, computing, and organization. (more…)
| Peter Lewin |
Many of the same theoretical tools and concepts that we use for the business firm are applicable to that other ubiquitous social institution, the family; though of course there are important differences (even though I am sure you know people who are “all business”). Steve Horwitz and I have written a paper that illustrates some of this.
The affects of the march of technology on the firm — for example, rendering obsolete certain kinds of physical and human capital, reducing production cost, increasing specialization and product variation, etc. — receive considerable attention. I have not seen much on these affects insude the family. Our article does analyze the long-term effects of the rising opportunity cost of labor in general and of women’s work in particular, which is the theme of a massive research literature. I have in mind rather the “mundane” effects on the family, and on the marriage, of unanticipated technological changes that, for example, affect the spouses differently. In effect, this is an unanticipated change in the marriage bargain that will plausibly bring with it additional un-bargained for stresses and tensions — an unanticipated rise in the cost of marriage (or of staying in the marriage).
I love my wife and I am not contemplating leaving, but I do feel the stress of having to perform all of the 21st century tasks for which I have a substantial comparative advantage, and which have become necessary and routine — like ordering things online, backing up data, downloading audio books (a necessity for exercising!) and so on. I wonder how common this is.
I might be in real trouble for this one :-).
| Peter Lewin|
I have an all-in-one color printer, fax, scanner (Canon MX7600). It is pricey, but the real kicker is the cost of the toner. It uses 6 different cartridges. Some of them run out pretty frequently. Each costs around $20, basically for a small container of ink. When any one of the cartridges runs out the machine shuts down — though it could easily print black and white when one of the colors runs out. Also, and this is the interesting thing, when any toner cartridge runs out all of the other functions of the machine shut down — no outgoing faxes, no scanning — even though these have nothing to do with printing. This way I am inclined to replace the cartridge sooner rather than later. Annoying. I suspect this is deliberate and maybe not enough of a nuisance to be a selling point in the competition for consumers.
Very different: I am running out of my blood-pressure medicine. I have my own blood pressure machine, and as horrendously complicated as it is to use it, I have somehow managed to master the art. My blood pressure is normal while on the medication. I attempt to refill the prescription (which costs $12 without insurance — not even worth claiming). No refills left. The pharmacy calls the doctor. The doctor’s office calls me to make an appointment. For what? To get my blood pressure taken. I have my own machine. That is not good enough. We have to do it! My appointment is at 10:45. I see the nurse at 11:15, after filling out paperwork that I have filled out multiple times before. I see the doctor at 11:45. I leave the doctor’s office at 12:05 after he has sent in my refill prescription. I pay him $30 copay. The insurance pays him about $150 for an office visit. Do the math to see how much this $12 prescription cost me (include the opportunity cost of my time and the cost of the office visit — which is reflected in my insurance premium). This ability to tie-in the purchase of a prescribed medicine with the purchase of an office visit is a massive social cost that we all face. It is the result of the non-market delivery of health-care.
| Peter Lewin|
Back from the AOM 2011 meetings in San Antonio, it is worth adding a few words on the Professional Development Workshop (PDW) on Austrian Economics organized by the Henrik Berglund, Todd Chiles, and our own Peter Klein. Also there were Roggl Koppl and Maria Minniti.
I, for one, found the session extremely enjoyable and worthwhile. I am not good at estimating numbers, but I believe there were in excess of fifty people there of diverse backgrounds — all shapes and sizes. The one thing they had in common was an interest in Austrian economics as applied to entrepreneurship. Some appeared to know more about it than others, but they all seemed to be genuinely curious. Very encouraging for those of us laboring for many years on behalf of the Austrian School.
Henrik began with a nice introduction, which he later followed up with a discussion of Kirzner on entrepreneurship. Peter Klein was first up with a masterful overview of Austrian Economics for newcomers, and Todd finished up with an interesting account of Lachmann’s work drawing on his recent work. We then split into spontaneously organized small groups to discuss various topics leading to suggested research topics. The group I was in arrived at the topic “The Anatomy of Disequilibrium Order.”
As I suggest to Peter K, this might be a manifestation of a development many of us have anticipated — in a nutshell, the bifurcation of the discipline of economics. While the mainstream has moved on to ever more narrowly technical and precisely irrelevant scholarly activities, those wishing to do real economics (economics that matters for the real world) are drawn to other closely related fields. I see this developing into a kind of “applied economics.”
| Peter Lewin |
From management professor Richard Rumelt. This is very interesting.
Today, households carry a much greater relative debt burden than they did in 1929, largely due to a 25-year mortgage binge. Between 1980 and 2007, disposable income grew at 5.9% per year while household indebtedness grew at 8.7% per year — a clearly unsustainable situation. As in 1939, this hangover of debt blocks new rounds of consumption and dulls the impact of fiscal and monetary stimuli.
From today’s WSJ: here.
| Peter Lewin |
Naomi Riley’s new book on university tenure is creating a bit of a stir. It is of a kind with a number of similar works reflecting growing unease about the traditional arrangements in academe. One reads frequently about the lack of value for money that students get for persistently rising tuition fees. And a colleague of mine says he thought he was hired to do research and found out he was actually hired to create publications — and these can be drastically different things. (Witness the recent post by Nicolai).
I wonder how these arrangements have survived in the marketplace. Clearly, universities are multi-product firms. Education (for which tuition is paid) is only one of the products. Another is “research.” This is supposedly a public good (in large part — I guess some products of research could be proprietary). So it is reimbursed by the public purse — aka we have a rent-seeking situation with all its dysfunctions, including minimal feedback on product quality. There is no constituency of consumers to speak of. In effect the producers (the researchers) end up judging their own work and setting the standards and (perhaps most importantly) the rules of the game. Put this in motion and you get a system that serves only the players of the game — provides them with formidable isolating mechanisms and protections.
One implication is that the larger the share of revenue accounted for by tuition (as with liberal arts colleges) the higher the quality of teaching should be. And a growing share of tuition dollars should put pressure on these isolation mechanisms. Of course, where this tuition is paid mainly by the state (state schools) this would not be the case.
So, its a bit of a puzzle to me why the liberal arts colleges don’t have a larger market share. Why do the big “research” schools maintain their prestige attraction when they cost so much and produce such low quality teaching? Maybe its a kind of screening effect — the job market rewards students who graduate from prestigious schools so good students tend to go there and the teaching is irrelevant — a network effect.
| Peter Lewin |
I am envious. My brother in law and my nephew are in the Serengeti National Park in Tanzania. He is sending short reports via his Blackberry. His descriptions are graphic — he is awe-struck. Sounds incredible, beyond imagination — to those of us veteran Africans used to having to search hard for game on our game park safaris. In the Serengeti there is game in exaggerated profusion. Lions, leopards, and cheetah virtually next to each other. Huge migrations of herds, hundreds of thousands strong. A trip for a lifetime. I should live so long.
It seems clear that this wonder of nature (a giant crater-bubble full of wild life) would not exist in the absence of the revenue from international tourism. Though government managed, it is subject to vigorous competition from other game parks in that part of Africa. The area is the traditional homeland of the legendary Masai tribe, who have a cattle-based economy. Population growth, technological change, and the pace of modernity threatened to destroy their world. Now they seem to be flourishing. The Masai have turned out to be successful entrepreneurs! I wonder if this is an instance of Ostrom’s successful local initiatives.
More generally, the preservation of wild-life in Africa has turned on the successful management of a plethora of wild-life game parks (many of them quite small relatively speaking), some having the status of super luxury hotels. There is an irony in there somewhere. (I wonder what it is like to have to manage a wild-life park as a business firm).
Of course most of the environmentalists never tell you about the preservation successes of market competition.