University Rent-Seeking: This Time It's Personal

As a university professor who is also the mother of an 18-year-old daughter, I am experiencing the anxiety of the university admissions season more than most this year. My daughter has her place, and yet I feel uneasy rather than jubilant. My visit to the institution of her choice convinced me that it is one of those rapacious London-based universities that profits from the rent paid by its own students while competing to out-rank Harvard in a meaningless international comparison. I try to explain the meaning to her life of a debt that may well reach £100,000 over her lifetime.

With my political hat on I have written a report for Green House thinktank that argues strongly for free third-level education for those young people who would benefit from it. My research into this issue blew away many of the myths that were propagated during the debate about raising students fees in the UK. I discovered that the UK’s spending on higher education in 2008 put it in 26^th position out of the 33 members of the OECD. The figure illustrates these comparisons and offers some interesting evidence. Perhaps most striking is the high proportion of GDP that the US and Canada spend on tertiary education. While we are following the US models in terms of fee rates, we are not following their level of investment in education, which is around 2.5 times as much. It is important to stress that these data relate to a period before the 40% spending cuts introduced in 2011/12.

Now a paper published in the autumn edition of the Journal of Co-operative Studies explains where all our public money is going, and why we cannot afford to fund our young people through education. It exposes a process of self-endowment by senior academics, who have used the cover of the shift from collegiality to managerialism to massively increase their salaries. The absence of checks on managerial autonomy has enabled the moral hazard of self-serving rent-seeking:

'The levels of vice chancellors’ pay provide material evidence of this hazard. In 1994-5 the
median VC pay was £92,000 and in 2009-10 their average pay was £254,000. Over the same period, the top of the senior lecturers’ pay scale rose from £33,000 to £55,500. In 1994-5 VCs earned 2.8 times the pay of a senior lecturer at the top of the scale, whilst in 2009-10 the comparable multiple was 4.6. In 1995 the Prime Minister’s salary was £82,000 and 29 out of 103 vice chancellors earned more than £100,000. In 2010 the Prime 20 Minister’s salary was £142,000, but every single VC was paid more than him, as were a further 800 other university employees.'

The authors find deep-seated problems with the governance of universities that they argue can only be addressed by a change in the ownership structure: the John Lewis University. The assets of every university should be placed in a nonrevocable trust that would hold the formal legal title to the organisation’s assets. The university's academics and students would become the Trust's beneficiaries. The trust deed would 'affirm the university’s status as a community social asset and an element of the knowledge commons'.

The authors conclude that 'Current turbulence in higher education organisations in the UL opens up potential spaces in which such alternatives might flourish. What is needed is
imagination and the determination to make change happen.'

As ever, if you would like to read the paper but cannot get beyond the corporate firewall that encloses academic knowledge, please contact me.

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Clegg Stuck on the Capitalist Fence*

As we seek to find an alternative to the discredited corporate capitalist model of enterprise it is vital that we understand clearly the range of options on offer, which is why Nick Clegg's confusing statement about the John Lewis economy is particularly unhelpful.

John Lewis is a company without shareholders, whose value is vested in a Trust and can only be shared between the company's employees. This is quite distinct from a standard corporation which allows its employees to buy some of its shares while its management is free to inflate profits by risky endeavours or extract value in bonuses. While John Lewis employees receive a share of the profits they generate, employees of share ownership schemes might find, like the employees of Enron, that they lose not only the value they created but also their jobs and their pensions.

Understandably, those who currently profit from others' work via their share ownership are nervous about the suggestions that workers might keep all the value of their work themselves. The response to Nick Clegg's speech from the Financial Times includes the expression of these views from the side of capital, skilfully woven in with the completely distinct anxieties expressed by Charlie Mayfield, chair of the John Lewis partnership.

Unsurpsrisingly, most of the discussion entirely avoids considering the option of a full-scale co-operative business, where risks and rewards are shared between those who work in the business, who are also its owners. The suggestion that workers might own and control their workplaces is part of the real alternative that may not be articulated. Whether we look to the Basque Mondragon Group or our own Suma Wholefoods co-operative we see a model that is stable, sustainable and just: a model that could form the basis for a national economy we could all buy into.

*An edited version of this letter was published in today's Guardian.
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John Lewis University

Given the coalition government's support for co-operative and mutual forms of economic organisation, some colleagues recently suggested the adoption of a stakeholder ownership model along the lines of the John Lewis partnership for the higher education sector. Universities, they argue, have weak governance structures, enabling managers to extort excessive salaries:

'The governance roles of university councils or boards are formally similar to those of shareholders. But they are a poor proxy for shareholders - as they make no financial investment, they have no financial vested interest to defend. If shareholders cash out, this can signal falling market confidence, threatening managers' jobs. But if members of governing bodies resign, there is no market to register doubts over organisational performance.'

They propose instead that the assets of universities should be placed into a non-revocable trust who aim is defined as 'the happiness of all its members, through their worthwhile and satisfying employment in a successful business'. As in the John Lewis group model, employees gain the value from their work, although in this model the management of the university remains with the hiearchy.

It is important that a new and consensual model for university governance is found. The removal of most government financial support for courses is a major step towards privatisation. Over the next few years, as income to universities falls, some will be faced with closure and external or management buyouts will become a serious threat. Meanwhile the private and corporate universities (such as the prototype Hamburger Degree launched by McDonalds last year) are reducing still further the requirement for education rather than training from our higher education providers.

So ownership matters; but so does control. Why leave the management of the universities in the hands of those who have managed to best compete in the internal bureaucracy? Why not move beyond the trust model towards a fully-fledged multi-stakeholder co-operative? Who is better placed to decide the strategy for the university, and the content of its curriulum? A manager, or the academics and their students?

Co-operatives-UK recently commissioned some market research to demonstrate just how well co-operatives are doing in terms of public perceptions. Nearly 80% of those questioned knew that co-ops share their profits, 75% considered them fair and 73% knew they were owned by their customers. Around two-thirds thought co-operatives could be trusted and operated for the public good. They were also thought to be honest (63%), open (59%) and democratic. What better people could there be to take charge of our young people's education? Tweet

Reasons to be Co-operative

Along with the other supermarkets John Lewis announced its record profits earlier this month, up from £250m. to £300m. But there is one big difference. Because of JL’s mutual ownership structure the profit will either be reinvested in the firm or paid out to employees in bonuses. Employees are actually known as ‘partners’ in the company and they will be paid an average of £2,000 on top of their salaries. As part of the group, Waitrose employees will benefit from this pay-out: a supermarket assistant earning £12.5K will get an extra £2,000.

John Lewis has a considerably smaller turnover than Tesco, and lower profits to match. But more important is the fact that Tesco’s profits will be paid to shareholders rather than employees, which helps explain why Tesco’s shares have increased in value by 25% over the past year. The basic justice of the situation at John Lewis compared to Tesco is so apparent that it barely seems stating: it is the employees who generate the surplus and so it is rightfully theirs.

In my world it seems obvious that, if employees know they will benefit from the success of the business they work for, they are likely to work harder. In the world of capitalist economics, though, co-operation is supposed to operate as a disincentive. It is cut-throat competition that yields efficiency. But if this were the case we would expect to see businesses like Waitrose failing, whereas in fact they are going from strength to strength.

A recent opinion poll asking about ethical brands reported in the FT shows that British consumeres do make the link between co-operatives and ethical consumption: 'UK shoppers emerged as the most aware, most critical and most likely to see national brands such as Co-op, the financial and retail group, or Innocent, the smoothie drinks brand, as standard-bearers.' Of the top 15 brands four are co-operatives.

As individuals playing our part in the economy we may be fortunate enough to work for a co-operative, or to be able to influence the movement of our place of work into co-operative ownership, or to start a co-operative business. If these options are not available we can at least choose to shop at a co-operative supermarket—Waitrose or the Co-operative—and use mutual banks and building societies—the largest being the Nationwide.This is much more than a token gesture. If we want to live by Gandhi’s maxim that we should ‘be the change we want to see in the world’, then if you want to see a just and co-operative world it is just common sense.

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