Asymmetrical Information - Megan McArdle

01.24.13

Quote of the Day

Where does administrative bloat come from, Mommy?

From Arnold Kling:    

This topic came up at lunch yesterday with Tyler Cowen. Could universities cut costs by firing half of their administrators?

I argued that administrators did not just descend on universities like a plague of locusts. In the economy as a whole, the ratio of middle managers to production workers is rising. You can see this by looking at the ratio of white collar workers to production workers in specific industries, such as automobiles.

In universities, I would argue that the growth in administrators is symptomatic, not an independent cause. The problem is what is known in the software business as scope creep or feature bloat. The more you add features to software, the more complex it becomes, and the harder it becomes to manage. Organizations are the same way.

The problem is that for all the complaining about cable, people like bundling. (You'd like it in cable too, if you saw how much it would cost you to get the four channels you watch.  Hint: the answer is not "a small fraction of what I pay now").

That's why cruise ships and all-inclusive resorts are a booming business, and why most people with decent credit have monthly cell phone contracts instead of pay-by-the-minute phones.  Students want their college to be like an all-inclusive resort, with loads of different things for them to do at a nominal cost.  But that means more administrators.  So does the increasing regulatory burden for liability and discrimination laws: better have a diversity officer, a safety officer, and sexual harassment training, so that you can defend yourself in any sort of lawsuit.  HR is getting more complicated every year: probably needs at least a VP-level role.  And so on, and so on, and so on . . .

Anyone who works in the private sector can attest that this is not just happening at universities.

We might be able to cut college costs substantially if we slashed administration, but we can't slash the administration.