Friday, 22 March 2019

Time For Radical Steps To Make University Fees Affordable

In my last post I suggested that the real scandal involving American universities is not the admissions bribery by desperate parents but the inexplicable, inexorable increases in university fees that are burying millions of students under a mountain of debt.

            I mentioned the case of a young relative of mine who went to university in 1985 when tuition, room and board amounted to about $15,000. Inflation between 1985 and 2019 averaged 2.54%. This means that an inflation-adjusted $15,000 in 1985 amounts to $35,238 in 2019.And yet many private, renowned, universities are now charging double that amount. A year at Yale, for example, will now cost more than $70,000.

            The only thing that shocks me is why more parents aren’t demanding exactly how universities can justify increasing their fees more than double the inflation rate. When do parents begin to revolt and start examining very closely just what they’re getting for all that money, start demanding that the universities make some radical changes, start looking for more reasonable alternatives? Just how far have universities strayed from their basic purpose of education and research?

            Perhaps the first question is why it takes four years to get a university degree. British universities take only three years to deliver quality education. Think of the money that could be saved if American universities squeezed more out of the year.

            Another reality stands out clearly with even a casual glance at any university’s glossy promotional brochure. They have become far more than mere educational institutions. Along with teaching and research they have become hospitality, entertainment and athletic conglomerates – each piece of which is very, very expensive. This involves, of course, increasing the university administration with more and more non-academic deans, each of whom costs well over $100,000 when you include their staff and expenses. Un-bundling  the conglomerate structure could include a cull of these non-academic administrators.

            Take the hospitality part. It is possible for the universities to sell some of their expensive living and dining facilities to professional hospitality companies who would then offer that accommodation to the students who would have the option of living there or going elsewhere. Think of the immediate cash inflow and reduction of maintenance expenses for the universities. Some alumni might scream to see Marriott’s name engraved over the dormitory, but presumably some of those savings would be passed on long-suffering parents.
Maybe Marriott's name should be over this dormitory
            The brochures also stress the elaborate and extremely well-equipped student union/entertainment/gym centers. Fine, but who pays for it. Again, wouldn’t the universities be financially better off sub-contracting that business to professionals. Students who want to use those facilities would pay extra, but the kid who never goes near them would not be burdened with having part of his tuition used to fund those centers.

            And then there’s the very touchy subject of athletics. Let’s take the Ivy League as an example. And I’m speaking here as a former Ivy League varsity athlete. While they are by no means national football and basketball powerhouses, Ivy League schools take athletics very seriously indeed. It is not unusual, for example, for an Ivy League team to bid for a national championship in sports like lacrosse, crew, or ice hockey. A mid-sized Ivy League university offers about 30 men’s and women’s intercollegiate athletic programs. Each of these teams has at least one -- usually more – coach in addition to equipment, medical insurance, travel expenses, facility expenses, etc. Then there’s the Director of Athletics and his/her staff. In short, it’s a very expensive business. Hard to justify why any portion of the tuition for some kid who is tied to a physics lab all day should go for this activity.
Yale: 2018 national lacrosse champions
            Don’t get me wrong. I love athletics and enjoy a good football game as much as anyone. But when parents are sacrificing so much to pay for their kids’ education there has to be a better way to pay for them. I propose ending university financial support for athletics. Shift that burden to the alumni/supporters willing to pay for them. Some schools have taken the first step in this direction by establishing sports foundations that help fund a broad range of athletic programs. I would go further an require all athletic funding to go through these foundations. The university could maintain control/oversight of the foundation to make sure the programs do not compromise the fundamental educational principles of the university.

            The football program of the University of Alabama-Birmingham offers a very interesting example. When the president of UAB announced in late 2014 that the school was dropping football there was a huge outcry. Over the next six months interested alumni, local business leaders, county and state officials felt that the football program was so important for the entire community that they raised enough money not just to restore the program but to build a new stadium. This was a classic win/win. Supporters got their football and the university could get back to what it is supposed to do.

            Universities could use some of the savings from these cuts to increase their course program and pay professors more. Instead, what many of schools are doing is hiring desperate post-grads on one-year minimal-wage contracts, so-called 'adjunct professors'. It’s a little like a law firm charging a client at a full partner’s rate only to have the actual work shunted off to a low-paid (relatively) first year associate. Instead of getting professors committed to teaching and/or research students face this revolving door of one-year wonders who offer no long-term commitment. I wonder if parents even realize just how much their kids are getting short-changed?

            It all comes down to examining very closely exactly what one wants from a university education. If you want the full conglomerate package you’re free to pay for it. If, however, you want a more tailored approach offering a high-quality educational experience without the extras you’re going to have to look very, very hard. Maybe it’s time for some bright entrepreneur to adapt the budget airline approach to education. Charge for what’s important, but forget the in-flight snacks.

Wednesday, 20 March 2019

The College Admissions Scandal Says Much More About Parents Than Kids

The admissions scandal rocking American universities says much more about parental angst and insecurities than it does about educational dreams of their children. From my days as a student working in the admissions office of an Ivy League university and then as what they call an ‘alumni interviewer’ the biggest challenge was satisfying the parents’ lofty goals.

Most parents insisted on being in the room when their son or daughter was being interviewed. They would constantly pull out dusty documents referring to the kid’s skill in kindergarten or success in a grammar school pageant as evidence of underlying genius and high potential as a Nobel Prize candidate. Every time the candidate tried to get a word in edgewise the parents would jump in. ‘Oh, he’s so shy he won’t say anything about himself.’ No worries there. The parents will fill that gap.

This snowflake has clear Nobel Laureate potential
            But more worrying than their desperate promotion was their complete ignorance about the reality of American higher education or its importance in later life. In answer to a question about what attracted the student to this particular university the parents would quickly intervene. ‘It’s in the Ivy League,’ as if nothing else mattered. I would gently try to remind them that while the Ivy League universities are indeed excellent there are hundreds of other universities scattered across the United States that are at least as good if not better than the eight (more if you include Stanford, Duke and MIT) Ivy League universities. One of the things the Ivy League has done extremely well, I would mention, is to market itself as the destination of tomorrow’s movers and shakers. ‘There certainly are other choices,’ an Ivy League admissions officer would intone with a look of slight disbelief at his own words, ‘But . . .’ The unspoken implication was that any other university might just leave your kid working the night shift at McDonald’s.

            It ain’t necessarily so. From a size, location, curriculum point of view any one of these other universities might be better suited to their child. The kid would look hopeful, but the parents would give me a look that would shrivel a cactus. ‘What? Are you crazy? How do I tell anyone at the Greenwich Country Club that my kid barely made it into something like the local Community College?’

Harvard may not be the best choice
Savvy families without piles of cash to throw around play the game much smarter. Their kids might just attend that local community college for a couple of years and then transfer to their state university often living at home to save money. The upshot is that the kid graduates without being buried under a pile of student debt.

            Anxious parents are also missing the larger point about the alleged importance of an elite university. While the choice of undergraduate university may mean a lot for the parents it plays  a smaller role in any student’s future success. Throughout my career I have seen countless successful people whose road to the top did not include a stop in the Ivy League. Hard work, raw talent and bit of luck still count regardless of the pedigree of the university.

            Then would come the inevitable question about money. ‘Alright,’ the parents would ask, ‘enough of these test scores and grades. What’s the bottom line? Just how much of a donation is it going to take to get my kid into a decent school?’ In my naïveté I would say that donations don’t really figure in the admissions decision. How wrong I was. The parents were absolutely right. Unless their kid had trouble writing his own name a large donation usually helped a great deal – especially if the kid was a good athlete. But there’s a humorous side to this policy. I once heard an outraged parent complain loudly that he had donated a few million dollars only to find that the university had put his name on a boiler room two levels underground.  

            But the real scandal giving such a huge advantage to wealthy students is the spiralling cost of university education. A friend struggling with two – soon to be three – children in university had an interesting observation. In 1985, when he was in university, the median household income in the U.S. was $29,000. Tuition at an Ivy League school was about $10,000. Room and board amounted to another $5,000. Altogether about 50% of household median income. Today that figure has exploded. In 2017 average household median income was $59,000. Tuition, room and board at an Ivy League school (as he is painfully aware) is more than $70,000 – 119% of median household income! And he said the schools have the incredible chutzpah to solicit donations on top of that! When he told an official from what the universities grandly call the ‘Advancement’ office (fund raising to most of us) he would think about a donation as soon as the school got serious about reducing costs the official scuttled away, never to be heard from again.

            Easy access to federal student loans has helped fuel this leap in costs. But universities themselves have done very little to check runaway cost increases. As they succumb to what the military calls ‘mission creep’ they have strayed very far from the basic academic purpose of training young minds.

            If the upshot of this current admissions/bribery scandal is some brief embarrassment for rich parents who should know better an opportunity will have been lost. If, however, it prompts universities to do some serious soul-searching about real, radical cost cutting then some good might come out of it.

There are some radical ideas for reducing the expense of higher education while improving the educational experience. But I’ll save them for another post.

Friday, 7 December 2018

What Would Odysseus Have Done With A SatNav?

When walking down the street have you ever noticed just how many people stride purposefully along with their eyes focused almost exclusively on the small screen of their smart phone held in front of them like some sort of medieval talisman warding off evil spirits? Oblivious to their surroundings they plough through crowds, sometimes straight into trees or lamp posts, as they tap furiously on the phone or check street signs to make sure the computer map is indeed sending them to Portobello Road and not Penzance.

Is this what we're coming to?

            It remains a mystery just what demands their constant, immediate attention. Remaining in touch with a friend they haven’t seen for at least 10 minutes? Checking their lottery number, finding the magic cure for Brexit, resolving the Syrian mess? Or perhaps they’re anxiously awaiting news on their Oscar nomination or Nobel prize announcement.

            While not wanting to appear like some old fogey technophobe I do sometimes wonder how the social value of recent ‘triumphs’ like Facebook, Twitter, or Instagram improve our lives compared with the discovery of things like penicillin, polio vaccine, electricity. It’s interesting that in the search for clean energy we’re going back to the very basic wind or geothermal sources. Perhaps one day we’ll even figure out how to harness the tides or develop energy from water.

            One innovation that seems to cause as much confusion as enlightenment is satellite navigation or SatNav. How many stories have you heard about people relying on SatNav only to wind up in a remote refuse pit instead of in their friend’s driveway? Once we made the mistake of using SatNav to find a hotel in Normandy and spent hours creeping around back roads before discovering that the hotel was less than a mile from where the device had told us to turn off into the woods.

            That experience only reinforced my prejudice for proper maps. Now before any journey I spend very pleasant hours in Stanford’s map/travel shop in central London. There you can find beautiful, multi-coloured, accurate road maps, hiking maps,  ordinance survey maps for almost every location in the world – all of which you can study at your leisure without that irritating little voice telling you to turn left in 200 meters, turn right there, and announcing arrogantly that you have arrived at your destination when a glance out the window shows that you are instead far from any known destination. Perhaps SatNav developers should add a phrase like ‘You Can’t Get There From Here.’

            These thoughts were wandering through my head as a recent Greek ferry trip took us past the sometimes-turbulent strait between the islands of Evia and Andros. This strait is the most direct route to Troy on the coast of Asia Minor, and I wondered what Odysseus would have done with a Sat Nav for his famous trip home after the long war.  Having made the trip to Troy 10 years previously he should have known the direct route home to Ithaca. But the gods, mainly Poseidon, decided to make his life difficult. At least that’s what he ultimately told his long-suffering wife Penelope.

Think she'll buy the  faulty SatNav argument?
             In addition to the issues with Poseidon he decided to add to his problems by relying on the first-generation SatNav. Instead of the simple, direct route the SatNav directed him to  zig-zag around the Aegean and Ionian seas for 10 years constantly being told to turn at the next way point or that he had arrived at his destination. I wonder if the system would have warned him about spending several years with Calypso, the risk of the Sirens, the dangers of Polyphemus, or the problems of a reckless crew that opened the bag of winds. After many distractions and useless side trips the little, by now almost completely torn, checkered flag finally appeared at Ithaca. History does not record what the frustrated Odysseus did with the malfunctioning SatNav. But he probably did what most of us often think of doing – grind it underfoot before confronting the wife and son with an already tall tale.

            Perhaps now we can blame the trials of early travellers on a faulty SatNav. One can only speculate how travellers like  Columbus, Magellan, the Vikings and others would have reacted when their SatNav said it was ‘recalculating’ or that they had ‘arrived at their destination’. They would probably still be floating around the high seas wishing they had relied on tried and tested celestial navigation. At least the stars move in predictable patterns without constantly 'recalculating.'

Wednesday, 21 November 2018

The Best Of All Holidays

In the pantheon of major American holidays none stands higher than Thanksgiving.  There is no pressure of frenzied gift giving, no special services unique to one religion or another, and no marching bands loudly proclaiming one’s nationality. It is simply a time for families to take time out and realize some things are more important than work, politics, shopping, or any of the other myriad events that seem occupy so much of our time.

            The food recipe is fairly simple. It’s been around since 1621 when local native Americans – perhaps unwisely in light of later events – shared a meal with the newly arrived settlers just south of what is now Boston. Turkey, sweet potato, corn bread and pumpkin pie are now the basics, and modern-day cooks can add green vegetables or other types of pie. Certain things, however, are off limits. My wife is Greek and one year thought perhaps a few spanakopita – spinach pies --- would be just the thing. Absolutely not, I insisted. Tradition is tradition and must be honoured. History does not record any evidence of flaky pastry in Plymouth, Massachusetts in 1621.  However, it must be said that that one slight slip was quickly remedied and we now have a Thanksgiving table second to none.

No sign of spanakopita
            The holiday was first celebrated in 1789, and it was an on-again-off-again thing until 1863 when Abraham Lincoln declared it a federal holiday. Seems strange to create a national holiday of thanksgiving in the middle of a vicious civil war, but then maybe Lincoln needed something to take people’s minds off the carnage on the battlefields.

           Now it is celebrated pretty much the same way throughout the country from southern California to the coast of Maine, and many family members overcome major obstacles to get home for this one holiday. Travel writers often say that the Thanksgiving period is the single busiest travel time of the year.

            For me, I always associate Thanksgiving with the small town in Vermont where I grew up. Autumn was over and hard winter had not yet arrived. The trees had lost their wonderful mosaic of red, yellow, and tan foliage. Their limbs were now bare, and the dark greens of the spruce, hemlock and pine trees dominated the woodlands. Fields were beginning to freeze hard, and rings of ice were forming on ponds and streams.  The birds had long since flown south and small creatures of the fields and woods by now were nestled deep in their warm burrows. Outsiders – those people from Boston or New York – would say the air was cold, really cold. True New Englanders would only concede that the temperature was indeed bracing – maybe time to put on the long underwear.

            With the wisdom of 12-year-olds we would comment on peoples’ winter preparations while walking home from school. Who had enough good quality, dry wood precisely stacked and protected, who had sacks of sand ready for the icy roads, who had cleaned all the leaves from gutters to prevent ice from forming under the roof shingles? Meanwhile we would busy ourselves with the important things like checking that our skis were well prepared and edges sharpened, ice skates well polished, and hockey sticks recovered from under work benches. 

            Sharp edges on the skies were critical. Skiing in New England was different than in the West with all its luscious champagne powder snow. We in the rugged northeast weren’t used to such luxuries. No, our snow was rock hard and quickly turned to ice. If your edges weren’t sharp enough to carve around the icy conditions your race turned into catastrophe as you slid ignominiously sideways down the hill instead of going neatly through the gates. Very embarrassing when you’re 12 years old.

            My mother was usually exhausted by the time Thanksgiving morning rolled around. There were very few supermarkets in Vermont in the 1950s, and none at all around us. She had to drive to several different towns to get what she called the ‘right’ Thanksgiving ingredients. But cook she did. And by early afternoon we were ready to gather around the table. While we were a fairly small family, the number always seems to swell with stray friends or a distant relative. One year we were joined by recent arrivals from war-torn Europe and listened in awe as they gave a special thanks and recounted their experiences just trying to stay alive during the war and in its immediate aftermath. That was my first, personal introduction to the world beyond our little slice of rolling, green, peaceful hills.

            After the meal and the washing up, there was the obligatory touch football game. Football is a game normally played with 11 people on a side. However, on Thanksgiving the teams could number as many as 20 ranging in age from four to 74 as different families gathered to work off some of the excess food. This game had strict rules, such as how many times one’s sister was allowed to touch the ball. Score keeping was haphazard at best, and the game ended only when both sides were exhausted, frozen, or both. Then we would retire inside to a nice warm fire and watch a real football game on television before falling asleep fairly quickly.

The obligatory Thanksgiving touch football game
            Times, circumstances, and locations change. But it is gratifying to see that this most basic of holidays featuring family, friends and food is only getting stronger

Wednesday, 14 November 2018

Is The Turkish Economy Strong Enough For A Marathon?

Over the past few years Turkey, like its neighbour Greece, has suffered a serious brain drain as thousands of talented young people—the kind of people Turkey can ill afford to lose -- left for a variety of political, social or economic reasons. Journalist Kadri Gursel, who had served a jail term for his sharp criticism of economic and political developments, revealed the extent of this problem in a recent column in Al-Monitor. One of those who left is a brilliant young financial analyst now working in Europe, and he offered these insights into the economic problems facing his homeland. For understandable reasons he prefers to remain anonymous.

          When I first started my career in finance 20 years ago,  my boss at the time gave me a book called “Warren Buffett’s Way”.  As a young Turk, who never heard of the great master before, I was impressed by the clarity of Buffett’s thinking and his simple explanations of quite complicated subjects.  One of the most striking examples was on how to approach macroeconomic analysis where he likened the U.S. economy to “a great athlete who runs sometimes fast and sometimes slow and we should not be worried about how fast he runs in the short run as eventually he will get to his destination”.  Later during the 2008 crisis, the great sage used the same analogy. This time he said that great athlete who should have been checking his blood pressure now had suffered a heart attack. What’s worse, he continued, is that the paramedics who arrived, instead of applying the resuscitator, started arguing about who was at fault. It doesn't help spending time worrying about who is to blame when the patient is having trouble breathing.

The economy is more than a 100 metre dash
            Borrowing Buffett’s analogy, we can liken Turkish economy to a typical Turkish athlete who likes to run a fast sprint just to get ahead. But then either he loses energy and leaves the race or relies on some supportive “substance” to finish the race, with the hope (and often confidence) that he is so smart that no one will find out about it.  Either way, the race ends in humiliation.  Beginning in 2002, the Turkish economy had run a great race with the help of a foreign trainer - the IMF --  who prepared a long term strategy and careful nutrition plan. The economy also had a technical adviser – the EU -- who promised Turkey the opportunity to compete with elite athletes, as long as it promised to learn and obey the rules of the game.  In addition, low global interest rates provided the perfect weather conditions for Turkey to shine by using foreign borrowing to import all the equipment and proper nutrition. Turkey, of course, promised to pay back all these loans after it had won the race.

Since 2013 a lot changed for our athlete. First, he fired his foreign trainer, stating that his own methods developed by the great leader Tayyip Erdoğan, are much better than the alien but scientific methods used by his old trainer.  Then, instead of trying to compete with elite athletes, he decided to join a new league in the Middle East – a league not known for having, let alone following, a lot of rules and where the concept of ‘fair play’ is considered just another Western intrusion into the region’s culture. However, lately our athlete realised that the competitors in the new Middle East are quite tough, and most of them (with the exception of one small runner – Qatar) have long memories and are not fond of the renewed Turkish activity.  Afraid of losing the race (and face) the trainer decided to push the athlete even faster.

This short-term tactic obviously needed more imported nutrients, equipment and even drugs (on credit), which resulted in Turkish economy growing over 7% in 2017, much faster than any of its competitors.  Given that the trainer’s strategy resulted in huge debts, around US$440 billion, it is understandable that foreign suppliers decided to ask for higher rates. They also stopped accepting IOUs in the name of Turkish Lira and more importantly showed some reluctance to extend or roll over maturing debt.   This obviously resulted in a sharp slowdown in the speed of our athlete or a complete halt to catch a breath in hopes of getting more foreign-supplied nutrients enabling him to continue with his fast run.  However, while he is catching a breath the trainer has started blaming everyone else, attacking other athletes, technical advisors and even some of the spectators who had nothing to do with the competition.  Moreover, once he started to feel the effects of his “cold Turkey”, he realised that he needs the drugs supplied by the others to continue with his performance. The trainer then began to approach some of these foreign suppliers for more supplies on credit.

What now?

However, this time it is different.  Given that our runner has completely run out of options he needs to readjust his speed or face the possibility of a major heart attack and leave the competition in disgrace.  Even in the best case where the foreign suppliers might agree to provide limited supplies enabling our athlete to continue running, the trainer needs to agree on a much slower pace. More importantly the trainer is told to stop his rhetoric against the suppliers and agree to make necessary changes to his current unhealthy diet of “using borrowed funds for construction of mega projects”.   The biggest problem in this case is that our tired athlete’s current manager, like any manager who believes he is smarter than everyone else, does not really understand the severity of the situation and is unwilling to change his game plan. 

He would rather to take the risk a risk of forcing his athlete to run even faster and force an even bigger catastrophe.  His management team has lost key members who have been replaced with family members and others whose priority is pleasing the manager rather than understanding the real rules of the game.  There is some small hope that a few of the family members understand the current situation. But there are doubts whether they can tell the manager to make key changes such as replacing the team doctor (Central Bank Governor) who has consistently been wrong in his diagnosis of what ails the athlete.

            To sum it up,  our Turkish athlete, once again is suffering from the effects of running much faster than his capacity and is completely exhausted. Our athlete now faces the choice of slowing to the pace of an overweight recreational jogger or forcing himself to run fast until his last breath – at which point he could probably only be saved by a foreign paramedic in the name of the IMF.   The decision is at hands of the manager and his team.