Administrative bloat at UNC?

Today's N&O has a big story on a study by Bain and Company of administrative efficiency at UNC-CH. The headline "Report Finds Bloat at UNC" sounds like a big expose. But after reviewing the study on the UNC-CH website, I think there is less here than meets the eye. Bain found that UNC-CH has a complex organizational structure and that administrative expenses had grown more rapidly than academic expenses. This is true at every major public research university, including NC State. The report NEVER gets into the root causes of the phenomena. Instead, it rather naively recommends the standard business process and IT system re-engineering that took place in most Fortune 500 companies in the 1990s, e.g., collapse layers of management. (For instance the report makes a big deal about many supervisors having only one to three direct reports. Maybe these surpervisors have job responsibilities of their own?)

UNC-CH and NC State are not Fortune 500 companies; they are public research universities. The ratio of overhead to academic costs will rise whenever universities decide to undertake a wider range of overhead activites or when the cost of overhead inuts rises relative to academic inputs. There is little reason to believe that the price of a dean or a program director has risen relative to the price of a faculty member, so let's focus on the activities side of the equation.

I see two leading suspects, the first of which is regulation. Most of the research is funded through federal agencies that dictate volumes of regulation. Accreditation bodies extract an additional tax, one that has gradually risen over time (for instance, now universities have to demonstrate academic programs result in student learning, and test scores don't count as evidence). The state has its own requirements, especially for personnel and procurement. All of these mandates require resources. To offset these costs which have grown over time at a good clip, universities rely more and more on non-tenure track faculty to provide instruction, thereby flattening out the growth rate of the academic expenses.

The second is mission creep. To compete for students and gain a spot or two in the US News rankings, universities are engaged in a broader range of activities than they were when (ahem) I was in school. For instance compare dorms, gyms, and student centers today to 30-40 years ago. Universities have launched initiatives to correct problems that linger from that era, e.g., diversity offices and advisors. And of course we also have intercollegiate athletics; how many more teams, coaches and administrators do we have now? Last but not least, universities are becoming more and more involved with economic development, including research parks such as NC State's Centennial Campus.

By ignoring the mission and environment of UNC-CH and the root causes behind the changes in structure and overhead expenses, the Bain report comes off as, well, a standard consulting report. Bain would (for a certain price) be more than happy to help UNC-CH re-engineer all sorts of systems and processes. But would you write a big check to a consulting company to do this if you thought they had missed the boat on problem definition?

Rent Seeking 101

There has been a lot of discussion about the proposal to allow unions to organize workplaces through signature campaigns. Getting much less notice is legislation that would make it easier for unions to organize FedEx. FedEx is currently covered by the Railway Labor Act which dictates that any union representation election would have to be nationwide. Last month the US House of Representatives approved a bill that is worded in such a way that union elections at FedEx would be governed by the National Labor Relations Act. NLRA allows for local elections, which could mean that FedEx drivers or package handlers in any city could unionize on their own. FedEx fears that this would allow unions to cherry pick a few key locations and thereby gain leverage over the entire FedEx network.

There are two key players pushing the legislation: unions representing transportation workers and FedEx's main rival UPS. FedEx and UPS execs have been working the halls of Capitol Hill to make their case. FedEx has threatened to cancel an order with Boeing worth billions of dollars, creating a split in the union movement on the merits of the House bill. More union jobs at FedEx would mean fewer union jobs in already-unionized Boeing. Then we have the spectacle, described in yesterday's WSJ, of the American Conservative Union (a so-called think tank) offering to write op-eds in support of FedEx if in return FedEx would donate funds to support ACU "grass roots efforts." When FedEx decided not to accept ACU's proposition, ACU sent out a letter denouncing FedEx's rhetoric -- FedEx has called the bill a UPS "bailout."

Just another day at the office in Washington, DC. My advice to FedEx customers: try to lock in today's shipping rates for as long as they will let you.

Will Goldman Sachs be the next Freddie Mac?

Paul Krugman seems to think so in his column in today's NYT. Wait, Krugman must be nuts, didn't Goldman Sachs just report billions of dollars in second quarter profits? But here's the rub: Goldman was one of many financial services companies that was deemed too big to fail last fall. No changes in financial regulation are on the horizon; Congress is focusing on cap-and-trade and health insurance instead and the President seems happy with that. Compensation practices have not changed, as Krugman notes

The huge bonuses Goldman will soon hand out show that financial-industry highfliers are still operating under a system of heads they win, tails other people lose. If you’re a banker, and you generate big short-term profits, you get lavishly rewarded — and you don’t have to give the money back if and when those profits turn out to have been a mirage. You have every reason, then, to steer investors into taking risks they don’t understand.

So what will happen? Bankers will take even bigger risks, one day they will find they have placed their bets on the wrong side, and guess who is left holding the bag? Krugman's take: the government needs to insist on tighter regulations as long as the Goldman Sachs and its ilk are in effect wards of the state. An alternative view I would like to see someone flesh out -- if these institutions are too big to fail, maybe we should bust them up so they aren't too big?

MBAs without work experience?

I got an email from an NC State MBA student who saw this Business Week article about how more big-name business schools are admitting students into their MBA straight from undergraduate (sometimes before finishing!). We actually tried this 15 years ago when we were offering the Master of Science in Management degree, and it did not work well. Those graduating with dual BS in Engineering and MBA degrees were overqualified for entry-level engineering positions and underqualified (because of zero work experience) for MBA slots. These programs were terminated 10 years ago.

NC State's College of Management does offer a degree for students without post-baccalaureate work experience -- the Master of Global Innovation Management. MGIM students spend fall in France, spring in Raleigh and this year will have the option to do a summer project in China. MGIM graduates can use their credits toward an MBA if they work for at least two years.

Economists on the blog forefront

Today's WSJ has a profile of the leading economics blogs and bloggers. I am familiar with and read most of them. Ordinarily I try to avoid content overlap with these blogs, but I thought the NC State College of Management community would benefit from knowing who the rock stars of the econoblog world are. Unfortunately the article did not mention NC State's own Craig Newmark, whose blog Newmark's Door is well worth checking regularly.

Stimulus 3 may be on its way

I have been out of town the last 10 days visiting family in Kentucky and Michigan. While I was away, the June employment report contained discouraging news; nonfarm employment declined by 467,000 and the unemployment rate reached 9.5 percent. Unemployment is now well above the level forecasted by President Obama's economic team when the stimulus package was approved last February.

Many politicians (but fewer economists) are wondering if a third stimulus package is needed (remember there was a tax cut last year). My Harvard classmate and former director of the Council of Economic Advisers Ed Lazear makes the case against further stimulus. Lazear reminds us that most of the stimulus money does not come online until next year and that the size of the 2009 piece of the stimulus package is actually smaller than the tax cut enacted under the Bush administration in 2008.

Paul Krugman has argued all along that the Obama stimulus package was too small; he makes the case of what to do next in a recent New York Times column. For the moment most economists (myself included) think it is way too early to be thinking about another stimulus package.