A Lesson in Political Management

Suppose you have just learned that the house you live in has leaky water pipes. If not attended to, the damage done by the leaks will compound and the value of the house will decline. Would you spend whatever it took to fix the problem? Or would you go out and buy an expensive new high-definition TV?

That might sound like a silly question, but that’s because you are assuming that you own the house. Of course, you would protect its value. The prospect of continuing damage from leaking water would be a strong incentive to repair or replace the pipes. On the other hand, what if the house wasn’t your property? The loss in value would not be your loss, and unless the leak threatens your belongings, why bother with it? You might just go out and buy that new TV.

Property rights obviously make a difference. What if there is no real owner with an interest in maintaining the property? That’s the case with “public property,” which really does not belong to any individual or group. Management of public property depends on the choices of politicians and bureaucrats who stand to gain nothing from making “right” decisions (those that make the best use of it) and to lose nothing from making “wrong” decisions (those that make less than optimal use of it). Political-bureaucratic management predictably leads to neglect of property entrusted to public officials in favor of spending that benefits them more in the currency of politics: influence, power, and prestige.

A recent controversy in North Carolina shows the truth of that theory.

The Campus Crisis

In April 1999 a consultant hired (at great expense) by the board of governors of the University of North Carolina released a report that shocked people. It stated that hundreds of buildings on the 16-campus UNC system were in “deplorable condition.” Hundreds of millions of dollars of repair and renovation work was needed “urgently” for dorms, classrooms, laboratories, and libraries. Over a ten-year period, the university system’s capital “needs” amounted to $6.9 billion.

Supporters of the university played up the repair and renovation angle, but inspection of the list of proposed spending projects showed that only about half the university’s priority “Phase I” spending was to go for repair and renovation of academic buildings. The rest was for land acquisition, various campus enhancements (such as landscaping), nonacademic buildings (such as performing-arts centers and athletic facilities), and a large-scale construction program to handle an expected surge in enrollments in the future. The “crisis” in the condition of existing buildings was running interference for a wish list of spending to expand and glorify the university system.

To pay for the great program to make the UNC system “ready for the next millennium,” the consultant proposed multibillion-dollar bond issues by both the state government and by the university system itself. If all that borrowing took place, it would double the state’s bonded indebtedness (a point never mentioned by the proponents). To keep the public from rejecting this appropriation of resources by the university system, supporters sought to exempt the bonds from the state’s referendum requirement by not having them backed by the full faith and credit of the state. Backers in essence said, “Trust us—you’ve elected us to make decisions on what is best for the state.”

Trying to allay fears that this would be too much debt, politicians and university officials came up with economic arguments that would have any well-taught Economics 101 student laughing derisively. The spending, they said, would “stimulate the economy” and thereby keep the state’s economy prosperous. Some people were impolite enough to point out that this is an example of Bastiat’s lesson of the “seen and unseen”; left in private hands, the money would “stimulate the economy” in other ways.

Backers also argued that higher education “drove the economy,” suggesting that if billions weren’t spent as they wanted, somehow North Carolina businesses would be unable to find competent workers. That’s a false dilemma. We do not have to choose between workers educated in state universities there is room for doubt that much education takes place there anyway—and workers who are not educated at all. But bad argumentation is the meat and potatoes of politics.

Skeptics, including me, quickly began to take issue with many aspects of the plan. For one thing, would the expected surge in enrollments actually occur? Distance learning via the Internet is starting to change the market for education, and we have no way of knowing how much it will reduce the demand for the traditional on-campus degree chase. Moreover, college graduates are increasingly having to take what have traditionally been “high school” jobs. As people realize that the market for employees with bachelors’ degrees (and masters’ and doctorates) is oversaturated particularly where the degree holder lacks the cognitive skills that are in high demand fewer people will choose to invest in those degrees. And even if there were an increase in the number of students wanting to enroll, why does that mean that the state university system must expand? There are, after all, private colleges and universities that would be happy to enroll more students.

The Vital Question

The most intriguing question, however, is this: Why had this “crisis” arisen at all? The UNC system receives a large amount of money every year for operations and capital improvements. Its budget has grown significantly in real terms over the last decade. It employs many people knowledgeable about building maintenance. Nevertheless, it was facing a building crisis. The consultant wrote that the overall quality of buildings across the system was “poor.”

Buildings deteriorate over a long period. It takes years of neglect before they can be called “deplorable.” The conclusion seemed inescapable that the political-bureaucratic managers of the system had failed to adequately maintain the property entrusted to them.

I decided to look back at UNC budgets for the last decade to see what tale they told. If maintenance of existing buildings had been neglected, what kinds of expenditures had been more important to the decision-makers? The documents answered just as I had expected. New construction had been proceeding apace. There was, for example, a new “Convocation Center” at Appalachian State that had cost nearly $30 million; almost $8 million for expansion of East Carolina’s football stadium; $2.2 million for a “conference center” at UNC-Asheville and $2.8 million for an even nicer one at UNC-Chapel Hill; $3.5 million for an arboretum at North Carolina State; $16 million for a library expansion at UNC-Charlotte; $5.7 million for a new administration building at UNC-Pembroke; $7.9 million for a physical education facility at Fayetteville State. The list goes on and on.

North Carolina was looking squarely at the age-old problem of political-bureaucratic management: the lack of incentive for decision-makers to take good care of the property entrusted to them. No financial loss accrues to university officials because they allow buildings to sink to a “deplorable” state. The budget they are given each year isn’t their money, so they choose to spend it on items that have little to do with education but increase the nonpecuniary benefits of their positions. Just as big-city politicians tend to neglect mundane things like bridge maintenance so they can spend more on vote-getting programs, public university administrators and their political allies tend to neglect building maintenance in favor of flashy new campus monuments. Eventually the bills must be paid for all the deferred maintenance, but that cost will, of course, fall on the taxpayers the same taxpayers who have already paid for all the buildings and expenditures that could have been done without altogether.

Missing from the decision-making of government universities is the profit motive. Here’s a good way to understand the profit motive: those subject to it stand to gain from being right and lose from being wrong. Actions that make good use of resources are rewarded with profits; actions that make bad use of resources are penalized with losses. In his recent book, Market Education, Andrew Coulson makes the point this way:

[I]n the private sector, the money educators earn or forfeit is their own; in the public sector, it is not. Just as parents are more careful about the kind of schooling provided to their children when they are themselves footing the bill, so too are teachers and principals more attentive in spending that money when they stand personally to gain or lose by their decisions. In competitive markets, then, educators have a clear financial stake in the success of their schools and that success is measured by the number and loyalty of the patrons who are willing to pay for their services.

The profit motive makes the consumer king and those who wish to succeed must strive always to find the best ways of satisfying him. In the profitless world of government education, however, revenues don’t come from satisfied customers and that gives decision-makers a free hand to spend money with their own satisfaction in mind. Waste of resources is the inevitable result.

In fact, in government education (as well as other government domains), the misuse of resources can actually be beneficial to the decision-makers. When their waste and folly lead to real or perceived crises, they can plead for more money from the taxpayer to “solve” them. The manifest failure of our government K-12 systems to educate children leads to ceaseless demands for more money, teachers, administrators, equipment, and buildings. All that money does nothing to improve education, but it does benefit teachers, administrators, and the many hangers-on who feed at that trough. In North Carolina, the self-created “campus crisis” has led to proposals that would pour significantly more money into the system and make it easier for the administrators to finance still greater spending in the future. In politics, nothing succeeds like failure.