WEBVTT NOTE The Contributions of Henry Manne 1 00:00:00.000 --> 00:00:08.000 When most economists think of Henry Manning, they may think of his superb work on inside trading, 2 00:00:08.000 --> 00:00:18.000 or his insightful extension of some of Hayek's work, or even on his contributions to legal education 3 00:00:18.000 --> 00:00:26.000 through his leadership as founding dean of the George Mason Law School, his fame, Institutes for Judges, 4 00:00:26.000 --> 00:00:31.320 which is an effort to introduce an element of economic sanity into legal 5 00:00:31.320 --> 00:00:37.120 proceedings. All these things and more are important but I want to focus on an 6 00:00:37.120 --> 00:00:43.480 extraordinarily perceptive paper that Henry did almost 40 years ago that has 7 00:00:43.480 --> 00:00:49.960 received little attention. Indeed I have been citing ideas almost identical to 8 00:00:49.960 --> 00:00:56.960 Henry's in this paper without knowledge of its existence, and I'm embarrassed to know 9 00:00:56.960 --> 00:01:03.520 that Henry not only beat me to the punch, but did so by 38 years. 10 00:01:03.520 --> 00:01:10.040 In the political economy of modern universities, Henry Manning outlines the evolution of the 11 00:01:10.040 --> 00:01:15.380 modern American university and discusses many of the fundamental problems that help explain 12 00:01:15.380 --> 00:01:26.500 According to Professor Manning, for more than two centuries after the founding of Harvard 13 00:01:26.500 --> 00:01:37.300 College, institutions of higher education served two major purposes. 14 00:01:37.300 --> 00:01:44.820 The first was a religious purpose of training ministers and devout laypersons who upheld 15 00:01:44.820 --> 00:01:47.020 of Christian Ideals. 16 00:01:47.020 --> 00:01:52.520 The second goal was to offer a liberal education to the elite who were the future leaders of 17 00:01:52.520 --> 00:01:53.840 our nation. 18 00:01:53.840 --> 00:02:00.260 As Manny put it, many schools were, quote, intellectual and social sanctuaries for Americans 19 00:02:00.260 --> 00:02:04.000 version of an aristocracy, end of quote. 20 00:02:04.000 --> 00:02:10.380 In both cases, the control of the college was in the hands of a person who had specific 21 00:02:10.380 --> 00:02:25.380 objectives in mind, religious training and indoctrination on the one hand, and on the other, the raising of gentlemen in a manner consistent with their becoming leaders of the country and preservers of upper class values. 22 00:02:25.380 --> 00:02:30.380 Didn't care too much whether they learned much. You said that in the paper. 23 00:02:30.380 --> 00:02:45.380 By subsidizing the cost of the education, donors and trustees could maintain control, not possible if enrollment were determined strictly on a non-subsidized basis by the forces of demand and supply. 24 00:02:45.380 --> 00:02:54.380 According to Professor Manning, beginning with the Morale Act in the late 19th century, the nature of universities began to change. 25 00:02:54.380 --> 00:03:06.380 The rise of the state university meant that donors and trustees no longer provided the financial support necessary for institutions to survive, and competition for students became greater. 26 00:03:06.380 --> 00:03:19.380 With the passage of time, increasingly faculty and key administrators were able to derive non-university sources of income, such as consulting contracts or outside-funded research support. 27 00:03:19.380 --> 00:03:28.380 No longer was the financial clout of the trustees and key donors of such a magnitude that they could dictate the major policies of the institution. 28 00:03:28.380 --> 00:03:34.380 A university trustee appointment became viewed as merely a minor honor. 29 00:03:34.380 --> 00:03:48.380 In Manny's word, quote, the most significant characteristic of the modern university trustee is his almost total lack of real interest in exercising any real authority. 30 00:03:48.380 --> 00:03:55.700 into quote. Sounds as good today as it did 40 years ago, Henry. While this is interesting 31 00:03:55.700 --> 00:04:01.620 and perceptive, the real meat of the paper follows. Manning says there are three ways 32 00:04:01.620 --> 00:04:08.480 that universities can be organized. On a free market model, on a dictatorial model, or on 33 00:04:08.480 --> 00:04:15.180 a cooperative member. While he says, and I quote, no strong argument has ever been made 34 00:04:15.180 --> 00:04:19.820 for Government Ownership and Operation of Universities," end of quote. 35 00:04:19.820 --> 00:04:25.440 He says the free market model is nearly impossible with government involvement. 36 00:04:25.440 --> 00:04:30.240 By the way, this was written before the rapid growth of the so-called market-driven for-profit 37 00:04:30.240 --> 00:04:34.440 institutions like the University of Phoenix, and I'd be interested to know what you think 38 00:04:34.440 --> 00:04:35.440 of them. 39 00:04:35.440 --> 00:04:42.840 But man, he does suggest a voucher plan modeled on the GI Bill of Rights that could perhaps 40 00:04:42.840 --> 00:04:48.040 Perhaps move higher education in a free market direction, a point which I think is very interesting 41 00:04:48.040 --> 00:04:49.720 I generally concur. 42 00:04:49.720 --> 00:04:54.500 Putting it in the context of today, perhaps we could refashion the Pell Grant program 43 00:04:54.500 --> 00:04:57.320 into a voucher given to students. 44 00:04:57.320 --> 00:05:02.180 While this may not be the ideal, it probably would be a step in the right direction. 45 00:05:02.180 --> 00:05:08.240 I have spent the last six years or so evaluating Manny's remark that there are no strong arguments 46 00:05:08.240 --> 00:05:10.920 for government involvement in higher education. 47 00:05:10.920 --> 00:05:16.320 I completely agree with him, by the way, but the best I can tell is that maybe all of the 48 00:05:16.320 --> 00:05:21.760 positive externality arguments for higher education are totally bogus, and a better 49 00:05:21.760 --> 00:05:26.680 case could be made that there are negative rather than positive externalities. 50 00:05:26.680 --> 00:05:31.440 Milton Friedman made that point to me in an email shortly before he died, adding that 51 00:05:31.440 --> 00:05:37.420 perhaps we should tax universities rather than subsidize them. 52 00:05:37.420 --> 00:05:59.780 If you run regressions trying to explain interstate variations and the rate of economic growth 53 00:05:59.780 --> 00:06:05.740 with one independent variable being state government appropriation for higher education, 54 00:06:05.740 --> 00:06:11.540 The results are uniformly negative, usually statistically significantly so. 55 00:06:11.540 --> 00:06:16.060 More governments support a higher education, lower growth. 56 00:06:16.060 --> 00:06:22.180 Maybe the mayor of Pittsburgh had it right recently when he proposed taxing universities. 57 00:06:22.180 --> 00:06:28.100 In any case, true higher education reform must work to reduce and hopefully end government's 58 00:06:28.100 --> 00:06:33.260 role consistent with Henry's insight from the early 1970s. 59 00:06:33.260 --> 00:06:39.400 I then briefly advance as an idea that I once independently advanced in a whole monograph 60 00:06:39.400 --> 00:06:45.480 I wrote relating to primary and secondary education, turn ownership and control of universities 61 00:06:45.480 --> 00:06:51.860 over to the faculty, indirect government subsidies of them, but allow government vouchers for 62 00:06:51.860 --> 00:06:57.340 students as a way to make the newly private universities commercially viable. 63 00:06:57.340 --> 00:07:01.680 This would change the incentive system drastically within the academy. 64 00:07:01.680 --> 00:07:13.680 It would probably put an end or reduction to mediocre faculty doing little teaching, but spending a good bit of time writing obscure papers for even more obscure journals of last resort. 65 00:07:13.680 --> 00:07:19.680 It would move universities towards the University of Phoenix model. 66 00:07:19.680 --> 00:07:29.680 A similar approach would be to sell public and not-for-profit private colleges to for-profit providers, but give faculty and others equity interests. 67 00:07:29.680 --> 00:07:35.840 Faculty would give up tenure, their exceedingly inefficient notions of shared governance and the like, 68 00:07:35.840 --> 00:07:42.720 but would receive a bribe in the form of a big increase in their net worth in the form of stock in the University of Phoenix, 69 00:07:42.720 --> 00:07:47.520 Strayer University or Bridgepoint Education. 70 00:07:47.520 --> 00:07:53.280 Manny goes on to assert that the dictatorial model was the one that prevailed in the 19th century, 71 00:07:53.280 --> 00:07:59.200 when trustees and top university officials ran institutions with a specific goal in mind, 72 00:07:59.200 --> 00:08:06.160 with little room for alternative perspectives academic freedom was not widely espoused or followed 73 00:08:06.160 --> 00:08:12.320 and the faculty did more or less what they were told however with growing governmental involvement 74 00:08:12.320 --> 00:08:18.800 the dictatorial model has broken down and the cooperative model now dominates university governance 75 00:08:20.480 --> 00:08:26.560 Manny observes that the cooperative model now prevailing is one where decision making requires 76 00:08:26.560 --> 00:08:33.800 There's negotiations and compromises between faculty groups and others with clout on campus. 77 00:08:33.800 --> 00:08:39.440 As Manny puts it, each contending interest group gives up any responsibility for overall 78 00:08:39.440 --> 00:08:44.520 university affairs in exchange for the right to be financed and left alone. 79 00:08:44.520 --> 00:08:51.920 And I quote him, the function of the administration and the trustees will be to ensure that sufficient 80 00:08:51.920 --> 00:08:57.360 and Funds Flow to Allow Everyone to Survive." 81 00:08:57.360 --> 00:09:02.320 He goes on to say this is essentially the European model, and that such a system usually 82 00:09:02.320 --> 00:09:06.940 means that there is little innovation and a mediocre education. 83 00:09:06.940 --> 00:09:12.280 The people who thrive are the bureaucratic infighters or dull, complacent scholars who 84 00:09:12.280 --> 00:09:17.540 oppose change and are exceedingly risk-averse, no entrepreneurship. 85 00:09:17.540 --> 00:09:24.340 He finally opines that, quote, it may be that the university world naturally attracts people 86 00:09:24.340 --> 00:09:32.020 who inherently favor collectivist status, non-market attitudes, end of quote. 87 00:09:32.020 --> 00:09:39.440 This in turn, of course, potentially poses a long run cost on society by creating a force, 88 00:09:39.440 --> 00:09:46.040 particularly among young people, to turn against the very system that made America great and rich. 89 00:09:46.040 --> 00:09:51.860 I completely agree with Henry. I think his insights help explain why the relative cost 90 00:09:51.860 --> 00:09:57.420 of higher education has risen sharply and why there is utterly no indication that quality 91 00:09:57.420 --> 00:10:04.540 has improved over time and arguably has declined. The job of modern university presidents is 92 00:10:04.540 --> 00:10:10.940 to raise enormous and growing sums of money, which are then dispersed to various claimants. 93 00:10:10.940 --> 00:10:17.620 members are bribed with low teaching loads, good parking, and nice salaries and perks. 94 00:10:17.620 --> 00:10:23.340 The students are bribed with fancy recreational facilities, no university interference in 95 00:10:23.340 --> 00:10:30.080 the pursuit of booze and sex, and a non-rigorous curricula and grade inflation. 96 00:10:30.080 --> 00:10:35.120 The alumni are bribed with competitive sports teams and a nice stadium. 97 00:10:35.120 --> 00:10:40.580 The senior administration is bribed by big salaries and given an enormous staff to do 98 00:10:40.580 --> 00:10:46.180 do their heavy lifting serving as glorified servants for the President and Provost. 99 00:10:46.180 --> 00:10:50.620 The federal and state governments drop money out of airplanes over college campuses or 100 00:10:50.620 --> 00:10:58.500 the equivalent to make it all happen, assisted by tax-sheltered private giving. 101 00:10:58.500 --> 00:11:06.620 Higher education suffers from deficiency with respect to three I's, information, incentives 102 00:11:06.620 --> 00:11:08.740 and innovation. 103 00:11:08.740 --> 00:11:13.820 The lack of a true market process means there is no bottom line, no well-defined managerial 104 00:11:13.820 --> 00:11:20.100 goals, and a lack of information and Hayekian knowledge, which is aggravated by schools 105 00:11:20.100 --> 00:11:28.420 not even collecting data on what their students learn, or even what they earn, after graduation. 106 00:11:28.420 --> 00:11:31.460 The incentive problem was previously mentioned. 107 00:11:31.460 --> 00:11:36.820 Employees have no incentives whatsoever to reduce costs, indeed every incentive to increase 108 00:11:36.820 --> 00:11:37.900 them. 109 00:11:37.900 --> 00:11:43.140 and innovation is lacking exactly as Henry stated nearly 40 years ago. 110 00:11:43.140 --> 00:11:49.940 With the possible exception of prostitution, I know of no other profession other than teaching 111 00:11:49.940 --> 00:11:56.340 that has had absolutely no productivity advance in the 2400 years since Socrates taught the 112 00:11:56.340 --> 00:12:00.540 youth of Athens. 113 00:12:00.540 --> 00:12:05.300 I'm not so sure about prostitution. 114 00:12:05.300 --> 00:12:10.500 Henry Manney is right on higher education as he is on so many other things. 115 00:12:10.500 --> 00:12:13.940 We rejoice in his contributions. 116 00:12:13.940 --> 00:12:19.320 Austrians and non-Austrians alike can appreciate his seminal insights that he has made that 117 00:12:19.320 --> 00:12:24.120 have strengthened our understanding of human economic action. 118 00:12:24.120 --> 00:12:25.120 Thank you very much. 119 00:12:25.120 --> 00:12:27.120 Thank you very much.