How to Survive in Postindustrial Environments: Adam Smith's Advice for Today's Colleges and Universities

By Ortmann, Andreas | Journal of Higher Education, September-October 1997 | Go to article overview

How to Survive in Postindustrial Environments: Adam Smith's Advice for Today's Colleges and Universities


Ortmann, Andreas, Journal of Higher Education


In every profession, to exertion of the greater part of those who exercise it, is always in proportion to the necessity they are under of making that exertion

Adam Smith

Introduction

Many, if not most, institutions of higher education have fallen on fiscal hard times. Because revenue-enhancing strategies have for the most part been exhausted, administrators in such institutions increasingly "restructure" or "reengineer" their institutions to balance budgets.(1) Unfortunately, reengineering and similar "quality practices" have failed to deliver on their promises in one out of every two cases in manufacturing and other service industries (Hammer & Champy, 1994, pp. 217-218). Keidel (1994) has suggested that this high failure rate is the result of a lack of theorizing. Specifically, he proposes to "rethink" organizational design while keeping in mind that organizational outcomes are a function of cognitive patterns of managers. Abrahamson and Park (1994), Cameron (1983), Cameron and Tschirhart (1992), Zammuto and O'Connor (1992), and Ostroff and Schmidt (1994) have provided empirical support for this proposition. With many colleges and universities embarking on "restructuring" and "reengineering" experiments, Keidel's proposition seems relevant.

For higher education, the analysis is complicated by the fact that most colleges and universities are nonprofit organizations. Hence, their optimization criteria are less clearly defined (Cohen, March, & Olsen, 1972; March & Simon, 1993; Oster, 1995; Young, 1983; Rothschild & White, 1991; Steinberg, 1993; Young & Steinberg, 1995). Complicating matters is the high degree of autonomy that faculty is often granted and its nonhierarchical organization (Massy & Zemsky, 1994). Organizational outcomes are thus also functions of cognitive patterns of faculty.

Drawing on his own quite diverse experiences, Adam Smith reflected extensively on educational institutions. In doing so, Smith also made the connection between organizational patterns and cognitive patterns. In addition, he linked the origin and evolution of cognitive patterns to teachers' and administrators' preferences and incentives. I propose that his disinterested advice from yesterday can be helpful in analyzing incentive problems that currently afflict higher education and in understanding emerging trends that seem to address them.

This article is organized as follows: First, I summarize Smith's analysis of the incentive problems that afflicted higher education at his time. I then discuss incentive problems that plague higher education today and emerging trends that signify attempts to deal with them. After a review of related literature I conclude with a discussion of the relevance and implications of Adam Smith's insights for our understanding of postindustrial environments.

Incentive Problems that Afflicted Higher Education in Smith's Day

Smith discusses education in Book V, Part III, Article II of The Wealth of Nations (Smith 1776). In that Book, Smith reviews the duties of the sovereign, which he identifies as defense, justice, infrastructure, and the provision of educational and ecclesiastical institutions. Throughout his discussion, a central concern of Smith is whether the necessary expenses can be repaid by those that benefit from the good or service to be provided. Smith argues that

the institutions for the education of the youth may ... furnish a revenue sufficient for defraying their own expense. The fee or honorary which the scholar pays to the master naturally constitutes a revenue of this kind (p. 716).

Having postulated that she or he who benefits ought to pay,(2) Smith notes that most schools and colleges in Europe have significant endowments, which tend to translate into guaranteed salaries for teachers, and he asks,

Have those public endowments contributed in general to promote the end of their institution? …

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