For release: April 7, 2005

Contact:	Joe Elstner
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Universities Should Work On Improving Own Productivity: St. Louis Fed’s Poole

link to speech

St. Louis, MO. — Most people would agree that college tuition has increased dramatically in recent years. Between 1990 and 2000, tuition jumped an average of 5.9 percent a year at public colleges and 5.5 percent annually at private colleges. That’s more than double the average consumer price index increase of 2.7 percent.

One key cause, according to William Poole, Federal Reserve Bank of St. Louis president, could be the lack of cost-saving incentives faced by public universities compared to private sector companies. Speaking to students, faculty and community leaders at Webster University, Poole cited National Center for Education Statistics numbers showing that administrative expenditures as a percent of total expenditures at public institutions increased from 30 to 50 percent between 1976 and 2001. “More alarming is that total instructional expenditures per student dropped 14 percent between 1990 and 2001, while administrative expenditures increased 14 cent over the same period.”

Poole cited financial aid itself as a possible reason for tuition increases. “Perhaps paradoxically, the availability of financial aid may be a reason behind higher tuition. Discussion of the affordability of higher education has focused attention of governments and donors on the need for financial aid to the almost complete exclusion of attention on productivity enhancements that might constrain tuition increases.”

Poole said universities can reduce costs and improve student quality in an effort to increase higher education productivity by considering these issues:

• Defining the university’s objectives
  
• Defining productivity inputs and outputs
  
• Measuring productivity and
  
• Demonstrating productivity improvements

Poole mentioned privatization of certain services as one way of increasing higher education cost efficiency. “Most universities are vertically integrated,” he said, “meaning they not only provide education but also food service, student and faculty housing cleaning and maintenance, and records management. While these services contribute to student learning, there is no reason why these services can’t be performed by private contractors.”

Decentralization of administrative structures can also benefit universities, said Poole. “This occurs often in the private sector, but universities generally have not followed suit.” He said decentralization can give academic departments more control over their costs and staffing needs and add flexibility in matching resources to changes in student demands.

Poole also recommended increased flexibility of university faculty staffing. “To rein in costs, universities must have flexibility to hire more faculty or increase teaching loads of current faculty when demand for a major increases, or to reduce both when demand decreases.” Poole cited academic tenure as “arguably the greatest obstacle to increased flexibility of faculty. Tenure prevents significant staffing changes in response to student demands and also may prevent lower quality faculty from being replaced by higher quality faculty.”

Poole said that “too few administrators and faculty are willing to even consider innovations that could make a real difference. We need thinking on all levels about innovative ways to deliver educational services. Great universities have a culture of scholarly excellence, of nurturing students and of open and free inquiry. They need to add to that culture a spirit of productivity enhancement so that tuition resources raised from families and funds from state legislatures and donors are used wisely.”

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