The Contributions of Henry Manne

0:00When most economists think of Henry Manning, they may think of his superb work on inside trading, or his insightful extension of some of Hayek's work, or even on his contributions to legal education through his leadership as founding dean of the George Mason Law School, his fame, Institutes for Judges, which is an effort to introduce an element of economic sanity into legal proceedings. All these things and more are important but I want to focus on an extraordinarily perceptive paper that Henry did almost 40 years ago that has received little attention. Indeed I have been citing ideas almost identical to Henry's in this paper without knowledge of its existence, and I'm embarrassed to know that Henry not only beat me to the punch, but did so by 38 years.

1:03In the political economy of modern universities, Henry Manning outlines the evolution of the modern American university and discusses many of the fundamental problems that help explain According to Professor Manning, for more than two centuries after the founding of Harvard College, institutions of higher education served two major purposes. The first was a religious purpose of training ministers and devout laypersons who upheld of Christian Ideals. The second goal was to offer a liberal education to the elite who were the future leaders of our nation.

1:53As Manny put it, many schools were, quote, intellectual and social sanctuaries for Americans version of an aristocracy, end of quote. In both cases, the control of the college was in the hands of a person who had specific 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. Didn't care too much whether they learned much. You said that in the paper. 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.

2:45According to Professor Manning, beginning with the Morale Act in the late 19th century, the nature of universities began to change. 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. 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. 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. A university trustee appointment became viewed as merely a minor honor.

3:34In 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. into quote. Sounds as good today as it did 40 years ago, Henry. While this is interesting and perceptive, the real meat of the paper follows. Manning says there are three ways that universities can be organized. On a free market model, on a dictatorial model, or on a cooperative member. While he says, and I quote, no strong argument has ever been made for Government Ownership and Operation of Universities," end of quote.

4:19He says the free market model is nearly impossible with government involvement. By the way, this was written before the rapid growth of the so-called market-driven for-profit institutions like the University of Phoenix, and I'd be interested to know what you think of them. But man, he does suggest a voucher plan modeled on the GI Bill of Rights that could perhaps Perhaps move higher education in a free market direction, a point which I think is very interesting I generally concur. Putting it in the context of today, perhaps we could refashion the Pell Grant program into a voucher given to students. While this may not be the ideal, it probably would be a step in the right direction. I have spent the last six years or so evaluating Manny's remark that there are no strong arguments for government involvement in higher education.

5:10I completely agree with him, by the way, but the best I can tell is that maybe all of the positive externality arguments for higher education are totally bogus, and a better case could be made that there are negative rather than positive externalities. Milton Friedman made that point to me in an email shortly before he died, adding that perhaps we should tax universities rather than subsidize them. If you run regressions trying to explain interstate variations and the rate of economic growth with one independent variable being state government appropriation for higher education, The results are uniformly negative, usually statistically significantly so.

6:11More governments support a higher education, lower growth. Maybe the mayor of Pittsburgh had it right recently when he proposed taxing universities. In any case, true higher education reform must work to reduce and hopefully end government's role consistent with Henry's insight from the early 1970s. I then briefly advance as an idea that I once independently advanced in a whole monograph I wrote relating to primary and secondary education, turn ownership and control of universities over to the faculty, indirect government subsidies of them, but allow government vouchers for students as a way to make the newly private universities commercially viable.

6:57This would change the incentive system drastically within the academy. 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. It would move universities towards the University of Phoenix model. 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. Faculty would give up tenure, their exceedingly inefficient notions of shared governance and the like, 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, Strayer University or Bridgepoint Education.

7:47Manny goes on to assert that the dictatorial model was the one that prevailed in the 19th century, when trustees and top university officials ran institutions with a specific goal in mind, with little room for alternative perspectives academic freedom was not widely espoused or followed and the faculty did more or less what they were told however with growing governmental involvement the dictatorial model has broken down and the cooperative model now dominates university governance Manny observes that the cooperative model now prevailing is one where decision making requires There's negotiations and compromises between faculty groups and others with clout on campus.

8:33As Manny puts it, each contending interest group gives up any responsibility for overall university affairs in exchange for the right to be financed and left alone. And I quote him, the function of the administration and the trustees will be to ensure that sufficient and Funds Flow to Allow Everyone to Survive." He goes on to say this is essentially the European model, and that such a system usually means that there is little innovation and a mediocre education. The people who thrive are the bureaucratic infighters or dull, complacent scholars who oppose change and are exceedingly risk-averse, no entrepreneurship. He finally opines that, quote, it may be that the university world naturally attracts people who inherently favor collectivist status, non-market attitudes, end of quote.

9:32This in turn, of course, potentially poses a long run cost on society by creating a force, particularly among young people, to turn against the very system that made America great and rich. I completely agree with Henry. I think his insights help explain why the relative cost of higher education has risen sharply and why there is utterly no indication that quality has improved over time and arguably has declined. The job of modern university presidents is to raise enormous and growing sums of money, which are then dispersed to various claimants. members are bribed with low teaching loads, good parking, and nice salaries and perks.

10:17The students are bribed with fancy recreational facilities, no university interference in the pursuit of booze and sex, and a non-rigorous curricula and grade inflation. The alumni are bribed with competitive sports teams and a nice stadium. The senior administration is bribed by big salaries and given an enormous staff to do do their heavy lifting serving as glorified servants for the President and Provost. The federal and state governments drop money out of airplanes over college campuses or the equivalent to make it all happen, assisted by tax-sheltered private giving. Higher education suffers from deficiency with respect to three I's, information, incentives and innovation.

11:08The lack of a true market process means there is no bottom line, no well-defined managerial goals, and a lack of information and Hayekian knowledge, which is aggravated by schools not even collecting data on what their students learn, or even what they earn, after graduation. The incentive problem was previously mentioned. Employees have no incentives whatsoever to reduce costs, indeed every incentive to increase them. and innovation is lacking exactly as Henry stated nearly 40 years ago. With the possible exception of prostitution, I know of no other profession other than teaching that has had absolutely no productivity advance in the 2400 years since Socrates taught the youth of Athens.

12:00I'm not so sure about prostitution. Henry Manney is right on higher education as he is on so many other things. We rejoice in his contributions. Austrians and non-Austrians alike can appreciate his seminal insights that he has made that have strengthened our understanding of human economic action. Thank you very much.