The Business Model and Today’s Economy – A Warning to Universities and Investors
As the Spring is over us, deans and vice-presidents of higher education across the country launch their annual budget work. Given the rosy economic scenario of better pay, work reports and profits, it would not be uncommon for Warren Buffett to begin to dream of expanding his own small circles to offer greater budgets to greater hires for his own units. My warning: look out!
As an educator, I have also heard top policymakers express their enthusiasm for how public universities are run on a business model. The idea is highly advocated by my own university president. The problem is that the majority of businesses do not have to deal with the problems facing universities.
Let’s see what is going on in a university. Suppose your product demand, classes, falls-less students are registered. In terms of staff and physical plant costs, the expense of operating a class is small. You can not close buildings down, so the only recourse is to minimise the employees. Here’s not an issue that businesses have.
They have never been able to demand that the few remaining customers produce as many goods as before. But the University can not cancel if you have a 40 student class reduced to 30 or even 20 students. These students registered well in advance for the class long before the semester started.
They are focused on their schedules and even graduation. If the class doesn’t do so, students will be annoyed because they have no difficulty to educate the world online at this time of the day. The university develops a poor name as news becomes viral.
This is another distinction between businesses and providers of higher education. The recruiting of businesses is more fungible. It is a few weeks’ notice if you let someone go. For colleges not so. Not so. You can leave workers that way, but teachers are on contracts for an academic year.
University administrators can determine, but can not conclude, not to renew a contract for a non-tenured instructor after the academic year. That means recruiting and making budget choices in good time.
I was at the forefront of the dilemma back in 2007. I’ve been the founding and chair of the Budget Committee of Idaho State University. As I have seen, our mandate was to keep economic developments updated in order to better advise ‘vehicle’ administered to slash the state’s higher education allocations.
At the time of my warning in 2007, the unemployment rate was 4.4%, the monthly incomes were raised by 0.3% and the year’s figures by S&P 500 and the annual profit rose by 16%. Growth of GDP was related to 3%. Well recognised sound? There was plenty of cause for hope but the future wasn’t so. This year, however, the key reasons behind the economic downturn will vary.
There has been a financial storm. This time around, the low-pressure front would result in a reduction in expenditure from the age group of 46-50 years, a group of which is known as the top donor. Consumer spending will continue to decline dramatically which prolongedly and will lead to a long economic downturn from 2023.
Managers should refuse to move the dollar and use university funds to resolve the immediate problem. It’s going to be no better next year. This downhill process is indeed going to continue to worsen and will last until 2023, as I mentioned earlier. Officials of the Universities are forced to deal with music some time so that they can also brainstorm and draw up a five- or six-year malaise strategy.
For investors on the stock exchange, the alarm is twice as high. Our economy will be hampered and our business income and prices will suffer from the same powers in the State finances. A big hit would be achieved for stock portfolios.
The latest stock market warning should be taken into consideration my advice. We just have a correction, but these are still the birth pains of the upcoming financial storm. The wise would make use of every uptick to cut off stocks. Some would now ridicule me, but when the heart of the storm comes, you want to be t.