P&L Duty of Universities is in National Interest

Less educated the parents and lower their family income, the probability of their children accomplishing academic success is rather low as per recent research. Consequential risk of our children missing the academic success would harm the economic growth. No satisfactory educational outcomes are likely without economic well-being and not much is going to be happening to economic well-being without education. To break the vicious circle, a great push is needed.

What could possibly be the connection between education and economic growth? There are indications that a more educated labour force is more mobile and adaptable; it can learn new tasks and new skills more easily. Educated work force can use a wider range of technologies and sophisticated equipment (including newly emerging ones), is more autonomous and thus less in need of supervision, and is more creative in thinking about how to improve the management of work and innovate.

Yet another reason could be that skills beget more skills and new ways of doing business, workers learn from one another, and firms adapt their technology and their use of capital to the skills of the available workforce. The benefits of having a more educated workforce accrue to everyone, not just to the firm but the economy as a whole and such gain may be especially important in an increasingly competitive global marketplace.

Beyond that, a more educated workforce may produce a less crime-ridden and healthier environment with better functioning civil institutions and all the benefits that flow to the business sector from that environment.

Government has many social development concerns like health, safety, nutrition, sanitation, infrastructure, public transport, employment, and literacy, besides higher education.  Most of the other social developmental concerns are shorter to medium oriented in matters of urgency as compared to higher education in terms of relevance and demands of the constituents. Government also have finite and limited financial resources to fund the developmental projects. In light of limited funding from the government, especially to bridge the revenue deficits, P & L (Profit and Loss) Management is the one of the most important duties of the Universities, both in their own interest of survival and in the national interest of growth.

How is a university like, and not like, a business? Large integrated universities are similar to a multi-product firm with many lines of work, from education provision and basic and applied research to benefits and services, such as health care and athletics. In addition, the university takes advantage of shared inputs across its business units to provide some cost and quality advantages. While universities tend to operate as high-quality firms, administration and coordination issues also tend to make them have high production costs. Clearly, a university is not a profit-maximizing firm; rather, a university tries to maximize some notion of knowledge-based value. So, how good are universities at doing this? How should they be governed and in whose interest?

One factor driving costs of higher education has been the languishing productivity. Even if instructional productivity has been increased by putting more students into the same classroom, it has fallen relative to other segments of the economy. Staffing levels outside the classroom have grown considerably. Today, there is more non-faculty professional staff per 100 students than they were some 25 years ago. In a system like a university, technical changes do little to increase productivity because basic inputs e.g., staff and physical facilities are still needed. Since wages still grow to keep pace with other industries, costs tend to grow at the overall rate of inflation plus productivity. The role of the university as a conservatory implies that higher education institutions cannot do all of their innovation through substitution. They need to retain knowledge of the past. Finally, the need to stay on the cutting edge implies increasing technology costs. And competitive pressure to retain the best faculty puts pressure on wages.

Tuition becomes the major revenue source that the university administration has some control over. Universities have also become better at price discrimination, meaning they charge different consumers different amounts of tuition based on the perceived intensity of demand. For example MBA programmes at most universities are priced higher than other Masters programmes. There are also issues of cross-subsidy between various functions on campus— research, athletics, undergraduate education, and graduate education—that make pricing less transparent.

Universities must develop other funding sources to supplement government support. These options include increasing revenue from tuition, having faculty find external sources of funding to support their research, and raising more private donations and endowments. Finally, leadership is needed to push cost reductions and increase productivity.