Friday, December 30, 2011

Countdown to Iowa

The Iowa caucuses are just a few days away. As it approaches it appears that the state is up for grabs with varying polls placing Romney and Paul in the lead. A few quick observations and thoughts.

Bachmann’s collapse.
This is one of the interesting stories to tell, tracing her victory in the August straw poll to what is certain to be poor finish on Tuesday. She is hoping that the 45% undecided break and that she is the recipient. No chance. The numbers do not suggest it. As Gingrich has faded his support has gone in three directions–Paul, Santorum, and Romney. Moreover, she has little chance to recapture the momentum after her manager defected. Bachmann is already a political zombie–walking dead–before Tuesday and really cannot not do much next Wednesday baring a miracle. Even then, she has no infrastructure to go beyond Iowa.

Paul’s day in the sun.
Paul will do well and still may beat Romney. He has a loyal following of young much like Obama 08 and one issue will be whether with school out that helps or hurts him. Paul’s GOTV is terrific and it may carry the day. He has taken a hit with his 1990s newsletter but it is not clear what impact that will have. Paul will have legs beyond Iowa and he may be a gnat to Romney as the latter seeks to consolidate.

Gingrich as Mr. Nice Guy.
Who would have ever thought of Gingrich as Mr. Nice Guy? The attack ads worked on him and he did not respond. He failed to remember the rule–define or be defined. He let his past define him and has lost momentum in the polls.

Santorum’s surge?
One poll has Santorum in third. He has benefitted from the other conservatives collapse (including Bachmann) but does he have the organization actually to deliver bodies on Tuesday?

Romney’s resurgence?
Iowa was a loser for Mitt but now he has a chance to win it and then New Hampshire the next week. He benefits from the mistakes of others and by being the consistent second choice of everyone else. In a field where there is some disarray perhaps simply holding on to 25% is enough.

Perry's Irrelevance.
What is left to say? He has put his foot in his mouth so many times his breath must smell like shoe polish. He has no momentum and appears to be spending all his money here with hopes like Bachmann that something breaks for him.

Are the GOP in trouble?
One dumb headline this past week said that there was a crisis with the GOP because going into Iowa there was no clear frontrunner or choice. Is it not the purpose of the primary and caucus system to select the nominee? It used to be that the conventions selected nominees and the crisis was if there were no clear favorite then. Then the fear was that going into the convention there was no clear favorite. Now it seems that there is a crisis if there is no favorite going into the caucuses and primaries. This is jumping the gun. Think of Iowa as the start of a decision-making process that is supposed to produce a nominee. The nominee is not supposed to be decided before the process starts.

Yet the GOP still face problems in terms of a message, perhaps nominating another Goldwater like candidate, and also via lack of support among Hispanics, Blacks, and other key constituencies in some swing states.

Obama’s problem.
Remember once a Democratic candidate running for reelection with high unemployment, slow growth, a large deficit, and rising gas prices? This was Carter in 80. We all know the economy is not a great issue for Obama but gas prices may also hurt him, too. Reports this week suggest $4 gallon gas this summer. Spikes in gas prices will not help him. Look to see another potential tapping of the Strategic Oil Reserve this summer.

Saturday, December 24, 2011

Obama’s Christmas Present

Christmas came early for Barack Obama as Republican prospects to pick up the presidency took a major hit this week. A series of events again demonstrated that Obama cannot win but the Republicans certainly can also lose the presidency.

Miscalculating the Payroll Tax
The most glaring event of the week was the misplaying of the House GOP vote on the extension of the payroll tax. In principle they may have been correct that a one year deal is preferable to a two month extension but they needed to act but did not. Perhaps they thought Obama would again capitulate like he did in August with the debt deal but the politics was very different then as opposed to now. In August failure to reach agreement meant a government shutdown, making Obama look hapless. This time no deal meant tax increases on the middle class and that would have stuck to the Republicans. Moreover, even the Senate Republicans–including Mitch McConnell and John McCain–pressured the House to assent to the deal. The House GOP here simply overplayed their hand and lost.

Obama the Economist Populist
Contributing to the miscalculation is the traction Obama has received in running as an economic populist. He has given two major speeches in the last few months describing himself as a man for the people. The first was his $450 billion jobs speech a few months ago and the other was his recent Osawatomie, Kansas speech. In both he talked of the need to help the middle class. Both were fine speeches, but talk is cheap.

Obama rightly so should be criticized as the Democrat who abandoned the middle class and the poor. He continued the Bush policy of bailing out the banks and he has put more emphasis on stabilizing the financial sector than he did in helping home owners and the working class. While his original stimulus bill did help, I argued after the 2010 elections that his failure has been to appear to side more with the banks than the people. Given how much he took from Wall Street in 2008 to finance his campaign, no surprise here.

But Obama has been lucky. Occupy Wall Street and the “We are the other 99%” campaign have helped him. Both shifted focus to the Republicans in Congress and running for president that there is a clear class divide in America. Previous blogs of mine have attested to this fact and the growing economic divide in America over the last 30 years. Congressional refusal to raise taxes, a Republican presidential debate revealing no candidate willing to raise one dollar in taxes for every ten dollars in spending cuts, and the failure of Congress to enact Obama paltry $450 billion jobs bill all make it clear that they do not care about the American people (had they enacted the bill they could have disarmed the president and still pointed to how they supported the president on all his major economic programs but they still failed).

The point is that Obama can look like an economic populist because of the failures of Congress and the GOP to offer a credible alternative and to play politics in a way that makes them look like they care for anyone besides the top 1%. Obama is winning because of the implosion of the Republicans.

The Dismal Presidential Choices
Obama is also benefitting from a Republican presidential field that is not a varsity or junior varsity but the freshman team. It is a team running increasingly further and further to the right. A team that is further to the right than the Reagan Party–it is the Palin Party still as I wrote about several times t his year. It is a party that has flirted with several conservatives–Bachmann, Perry Cain, Gingrich, and now maybe Paul as the preferred choice over the more moderate but lackluster and passionless Romney. They seem out of touch with America in their talk of tax cuts, privatization, and return to the gold standard.

Now with little more than a week before Iowa, the race is definitely up in the air. Recent polls confirm what I asserted in an interview last week that Paul, Gingrich, and Romney will be the order in Iowa come January 3. But even if Paul does not win, his ascendency is a problem for the Republicans. If he does well in Iowa is libertarianism will play even better in New Hampshire and Romney needs to worry about a relative poor showing there on his part. This year with the Republican primaries and caucuses allocating delegates not by winner-take-all but proportionally, unless there is a quick kill by one candidate in January, look to a long primary and a potential brokered convention.

So What Does All this Mean for Obama?
Obama is now in much better shape in the polls for reelection than he was a few weeks ago. Polls have his approval rating up to 49% and it now exceeds is disapproval rating. He has a 7 point lead over Romney and much larger leads over the other Republican candidates. Congress’s approval is under 10% and public approval of the Tea Party has weakened. There are small signs of economic improvement but certainly no indication of real growth or significant decreases in unemployment in 2012. The economic news and prospects should doom him and the Electoral College road to reelection is complicated, but Obama now has a clear lead in Florida.

But compared to the Republicans running for president and those in Congress, he looks good. Obama can run for reelection on a slogan of “No matter how bad I am look at the alternative.”

Merry Christmas President Obama! Your present came wrapped with Republicans in a box they are building themselves in.

Thursday, December 22, 2011

Gingrich and Koch: Character Matters

This essay originally appeared in the December 21, 2011 edition of Politics in Minnesota. This is an abbreviated version of that essay.

Does character count? Stories of New Gingrich’s three marriages and Minnesota Senator Amy Koch’s “inappropriate relationship” with a staffer have again thrown that issue into the news. Whether these private acts or activities should be considered when evaluating public officials fitness for office raises difficult questions about where personal character fits in. Is there no privacy for public officials? Is everything fair game for the voters to ponder when selecting or judging candidates for public office? The simple answer is that character matters, but how and under what circumstances is really the issue.

“Character” is an elusive term. In political parlance it seems to refer to many variables including one’s personal conduct and morality. Supposedly Gingrich’s three marriages and Koch’s inappropriate relationship tell us something about fitness for public office. Maybe simply being unethical in one’s private life is enough to exclude one from public office. But it is not always clear how public and private morality connect.

Character, as Aristotle would declare, refers to habits. To do something once–steal–does not make one an unethical person. We all err. None of us are perfect. But occasional falls from grace do not render us ethically bad. However at some point acts become habits–what we do is a reflection of who we are–and we then can be judged to be unethical or bad when it speaks to our character–when it is a habit of the heart.

But judging when transgressions are habits that form character and when they apply to fitness for office is complex. One of the worst forms of character assassination is dredging up something from a candidate’s past as a way to judge them presently. All of us do dumb things when younger that we regret and the mark of maturity is learning and growing from them. We cannot judge our life as if all our choices were made at the present time.

Past choices might tell us something about the present, but they need to be assessed in terms of how we have grown from them. Not to do that condemns all of us to be ever judged from our youth or an earlier point in time that we may or may not have growth from.

When do past bad ethics form a basis of a present unethical character? Here is where the issue of judgment fits in. Many jobs have technical skills that are required for proficiency. Being a doctor, plumber, or electrician come to mind. But many also require the capacity to make good judgments–often ethical choices. This is the case with elected officials called upon to make decisions about public welfare and the common good. Elected officials are not simply delegates voted into office to do the bidding of the majority. They are elected in part as Edmund Burke pointed out to make good judgments on behalf of their constituents. Citizens are not fully informed about all issues because of time and other factors. The purpose of a representative system is to allow public officials to serve as trustees for the people–rendering their judgments in a way that they can act in the public interest. This trustee relationship necessitates good judgment.

The public is most certainly entitled to consider character as it relates to making good judgment when it comes to determining fitness for office. Here is where personal morality comes in.

Does Gingrich’s three marriages speak to his fitness to be president? Maybe. If those marriages speak to his present character and judgment as president then yes. But even more needs to be asked. Americans rightly hate hypocrisy. Saying one thing and doing another is hypocritical. Making oneself an exception to rules of conduct that is expected of others is the core of being unethical and hypocritical. Gingrich’s 1994 Contract for America demanding that Congress be held to the same standards of conduct others are expected to follow was correct. The problem for Gingrich is that his views on marriage, gay rights, and perhaps even abortion seem at odds with his own personal life. His personal character places into play the right of the public to ask how he can reconcile his own personal code of conduct with the political positions he espouses. This connects to his judgment and the former House Speaker should as part of his campaign clarify how all of these relate to his capacity to make good judgments as president.

Similarly, Amy Koch’s behavior speaks to her fitness for office in at least a couple of ways. The allegations are that the inappropriate behavior implicates a sexual relationship with a Senate staffer. Most of us have learned at work that supervisors should not date subordinates since such relationships raise concerns of favoritism, sexual harassment, and hostile work environments. Senator Koch should understand that. Not to do so and to engage in an ostensible sexual relationship with a subordinate raises questions about good judgment.

But more importantly, Senator Koch is married and she led a Republican chamber last spring that adopted and sent to the voters a constitutional amendment banning same-sex marriages. That amendment rendered a judgment about marriage and the personal morality of others. It is hypocritical that while this amendment was being debated she might have been engaged in a inappropriate relationship at work. Unlike Gingrich where his three marriages and affairs took place in the past and presumably he might have grown and learn from them and he is now a changed person–as he contends–Koch’s behavior is not in the past but now, merging her private and public lives but in terms of the judgments she is making presently as senator and also because of the relationship taking place with a Senate staffer and subordinate. It is all of these facts coming together that place her character and judgment in play.

Wednesday, December 14, 2011

Random Ruminations on the Republican Rumble

So what are we to make of the latest stories about the Republican presidential contest showing a surging Gingrich in Iowa and across the country, a slipping Romney, and a not so surprising rise of Ron Paul? Some quick thoughts here.
  • Iowa polls show a state up for play. Romney and Perry are dumping millions in to the state in a battle that is less about substance and policy than character. Character looms larger because the real policy differences among the candidates are trivial.
  • Bachmann’s Saturday debate line of casting Gingrich and Romney together as “New Romney” was politically brilliant. It turns Gingrich into a moderate and makes her the sole conservative alternative. She will drive this message home for the next few weeks.
  • Gingrich is the repentant sinner. What better way to make political advantage out of one’s character flaws by admitting the errors, admitting one’s sins, and asking forgiveness. The repentant sinner plays well with religious conservatives.
  • Ron Paul wins Iowa? It can happen. He almost won the straw poll in August and he has a strong dedicated group of followers. He has money and organization. Is he the new flavor of the month emerging? Look to see a potential surprise victory her and if so, look to see him do well in New Hampshire–a state more supportive of his libertarian views. Again do nor rule out a Paul third party bid.
  • Huntsman as Gingrich’s VP? Yes, the two person debate demonstrated they can work together. Huntsman is the favorite Republican of Democrats and he appeals to swings. He appeals to westerners and moderate east coast Republicans.
  • Romney: I bet you $10,000 that he damaged himself on Saturday and now that he is part of the fray he will get bloodied by the character battles. He needs to change is narrative and fortunes and that is not coming soon.
  • Bachmann has a trickle of an opening after Saturday and her 99 county tour of Iowa is meant to whip up political support and recapture lost conservatives. Media profile is good but Iowa is about delivering real bodies on caucus night and get out the vote efforts and ground wars are more important now than airwars.

Thursday, December 8, 2011

The Republican Choice: Why Gingrich?

Is Newt for real? This is the question increasingly asked as polls indicate that former House Speaker Newt Gingrich has taken the lead among the Republican presidential contenders. The simple answer may be yes, boding badly the for campaign of Mitt Romney who has struggled for months to be the inevitable last choice candidate once all the others have faded. But Newt’s rebirth and Romney’s campaign strategy are linked, pitting inevitability against reliability.

Don’t Hate Me Because I’m Mitt

Mitt Romney has had an identity problem from the get go. Best summed with the label “Multiple Choice Mitt,” Romney faces an initial problem that no one knows where he really stands on the issues. He is a former moderate Massachusetts governor who supported reproductive rights, gay rights, and he signed into law a health care bill essentially identical to Obamacare. Romney is a skilled businessperson and politician who saved the 2002 Olympics. He knows how to get things done. This should be his political narrative for his presidential campaign. But it’s not.

In 2008 Mitt ran away from this narrative. He pandered to the conservative base of the party, renouncing his moderate positions. Yet given the global economic collapse and John McCain’s avowal that he did not understand economics, had Romney stressed his business experience then he might have won the nomination. Now in 2012 as the Republican Party has moved further to the right Romney has abandoned even more of this narrative, seeking to out-duel the other presidential contenders in terms of xenophobia against immigrants, bashing gays, abortion rights, and taxes, or in renouncing health care reform. Mitt both wants to be the can do governor and businessman and the right wing extremist. No one really trusts him anymore–especially the Tea Party base–thus the moniker Multiple Choice Mitt.

But Mitt also suffers from another flaw–he is a pretty boy. Pantene shampoo famously featured a 1990 commercial with Kelly LeBrock who cooed “Don’t hate me because I am beautiful.” Mitt may be hated for that reason. He is rich, handsome, has perfect hair, and a trophy wife. All reasons to hate him because he has it all. Few can identify with him because of that. Voters bonding with presidential candidates is important. In 2004 voters preferred Bush over Kerry because the latter came across as an aloof prig.

Mitt also has another identify problem–no charisma. He is wonkish and more of a technocrat. He is reminiscent of another former Massachusetts governor–Michael Dukakis–who was similarly skilled but also boring. Politics is about passion and no one can really get passionate over Mitt.

Romney, though, has labored to make a virtue out of all of this. Be the viable second choice who outlasts everyone else in the race. Manage the best campaign, raise the most money, site the most offices, and script the best choreographed speeches. Romney’s strategy is to be the “steady Eddy”; be the one true love or candidate who is there for you after the quick romances and one night stands for the others pass by. Romney’s strategy–Mr. Inevitable.

But why Newt?

He’s not Romney. That is only part of the appeal. The other part of the appeal is that he is the last candidate standing. Gingrich appeared to flame out early before it became fashionable for the other Republican contenders to do so. Stories of infidelity, million dollar credit lines at Tiffanys, growling at the media, and a campaign staff quitting en masse; Newt was just ahead of his time. Since then we have see the other flavors of the month, as the media calls them, rise and fall. Trump. Bachmann. Perry. Cain. Each had an Andy Warhol 15 minutes but each faded as the presidential debates and vetting process grinded on. But eventually each undid themselves. Who was the last one standing? Not Romney, but Gingrich.

Most importantly, Gingrich is actually Mr. Reliable. Unlike Romney where no one knows where he really stands, everyone knows Gingrich and his views. His reliability is a political virtue compared to claims of inevitability. Gingrich was there with the Contract for America in 1994. He led the impeachment against Clinton in 1998. He carries the mantle of the Reagan brand. He is a known and dependable conservative. Yes he is full of warts, but unlike Cain and others, he admits them and says it’s time to move on. Americans hate denial or lying but can accept sinners and that is what Gingrich understands.

Conservative Republicans distrustful of Romney and not liking the other choices finally came back to Gingrich. He is more than the flavor of the month. But even if he is, it is good to be the flavor when it is your month and with it being T-minus less than a month to the Iowa caucuses. The timing is great. Gingrich leads in Iowa, South Carolina, and Florida, three of the first four contests. He is behind in New Hampshire but picked up the critical Union Leader newspaper endorsement. Romney was expected to win big in New Hampshire. He may still win but unless it is a blowout he will look vulnerable.

What is happening now with Gingrich is different than what transpired with Bachmann, Perry, and Cain. What is now occurring is the coalescing of the party around him. Cain’s endorsement is a sign, look to see others also endorse him as they leave the race early in January (except for Ron Paul who will potentially run again as the third party Libertarian candidate and complicate GOP strategy). By the end of that month look to see a race between Gingrich and Romney. Beyond January, the task will be organization, money, and momentum. Right now Romney has the first two but not the third. Gingrich has the third but not the first two. His challenge is taking his momentum and the passion around him to create the organization and money he needs to win the nomination. If he can do that, Romney is done.

Wednesday, December 7, 2011

Statistics mask reality: Unemployment isn't going down, and Minnesota doesn't have a budget surplus

Today's blog appeared in Minnpost as an editorial on December 7.

"Lies, damn lies, and statistics." Proof that this adage rings true can be seen in two recent stories declaring the national unemployment rate had dropped to 8.6 percent and that the State of Minnesota had a budget surplus of $876 million. While many herald these numbers as signs that the American and Minnesota economies are improving, the truth is that both mask a reality that is far grimmer than the statistics reveal.

The meek jobless recovery from the 2008 recession persists. With unemployment hovering around 9 percent, the American economy seems stuck in terms of job production. Obama had proposed a series of tax cuts and projects to stimulate hiring, but their fate in Congress during a presidential election has doomed them. Even if passed, the original September $450 billion jobs plan would do little to encourage business hiring. That will not occur until consumers are willing to spend enough money on goods and services to make it profitable for businesses to hire. As late as just a few weeks ago the Federal Reserve Board predicted that well into next year unemployment would not fall below 8.5 percent. Such a number poses a political problem for Obama – with the exception of FDR, no president has been reelected with an unemployment rate greater than 8 percent.

The surprising drop in the unemployment rate from 9 percent to 8.6 percent in November appeared to be good political and economic news. Yet it is not for several reasons. First, the rate reflected less a robust growth in the economy than many individuals leaving the workforce because they could not find work. The official unemployment rate calculates only those actively looking for work. If you cannot find work and have stopped looking, you are not counted among the ranks of the unemployed. Buried in recent unemployment figures was evidence that the workforce was contracting — many individuals have simply stopped looking for work. Perhaps half if not more of the drop in the rate in the last month was due to this fact.

Low rate of job creation

Yes, the economy produced 120,000 new jobs. That appears to be good news, but not really. The country is millions of jobs away from re-creating all of the positions lost since 2008. Millions of additional jobs are also required for new workers entering the labor force. The economy needs to produce perhaps 300,000 or more new jobs per month for several years before the loses of 2008 are recaptured. This would require economic growth far greater than the 2–2.5 percent increase projected for the near future.

There is little sign of significant turnaround for the American economy. Consumer debt remains high – nearly $830 billion – and student-loan debt will soon be $1 trillion. Housing prices and sales remain flat, consumer confidence low, and despite some bright signs that Black Friday and Cyber Monday were good, few are foretelling a serious consumer economic boom. The 8.6 percent unemployment rate fails to capture all this.

Minnesota: In the money?

If the 8.6 percent unemployment rate is a lie, news of the $876 million budget surplus is even more so. With predictions prior to the announcement last week that the state was up to at least $1 billion in the red, news of the surplus was greeted as proof that the Minnesota had turned the corner. Republicans cheered the news as proof that balancing the budget with cuts alone and no tax increases was correct. Dayton, with nodding approval of Zygi Wilf, hoped that the surplus would make public financing of a new Vikings stadium more salable. But despite claims by all that a surplus exists, the reality is: It does not.

First, recall the budget deal from last July to end the government shutdown. It came with $2.2 billion taken from K-12, and $700 million in borrowing off of Minnesota’s tobacco endowment. This was on top of other budget cuts to vital programs.

The reality is that the balanced budget was achieved by serious debt financing.

Second, the budget projection benefits from a law that calculates inflation when it comes to state revenue but ignores it for obligations. This means that the actual projection released last week is distorted by overestimating income and underestimating obligations.

Third, the budget agreement from July required that approximately the first $900 million of surplus must be used to replenish the state budget reserves and rainy-day funds. Thus, this $876 million is already called for and not available for spending.

One-time fixes

Fourth, whatever the reality of the current state budget, the fixes, such as borrowing to balance it last July, were one-timers. They failed to address to long-term fiscal imbalances in state financing, setting up the next biennial budget to again be several billions of dollars in the hole.

Finally, whatever the fiscal forecast stated, another one is due at the end of February 2012. That is the one that will be used by legislators to make the budget. It is still not clear whether it will be as optimistic as the one just released, especially if the state and national economies fail to recover.

Minnesota really does not have a surplus. Nor is the United States experiencing a serious decrease in unemployment. These two statistics mask a reality that shows how numbers do not always tell the truth.

Friday, December 2, 2011

Top Ten Things That Should or Should Not be Done with Minnesota Unexpected Budget Surplus

A surprise for all–Minnesota appears to have a $876 million budget surplus. Santa came early and now the talk at the state capitol will be over how to spend the money. Here is my short list on some good and not so good ideas.

My suggestions are in descending order from good to bad ideas. Expect debate in MN to focus more on the bad as opposed to the good ideas.
  1. Do nothing. The surplus is illusionary and may vanish or change dramatically before the next fiscal forecast by the end of February, 2012.
  2. Save it. Bring up the state’s rainy day fund.
  3. Save it for the deficit in 2013-14 budget.
  4. Use the money to pay off the interest and borrowing off of the tobacco endowment.
  5. Repay the money borrowed from K-12.
  6. Restore the cuts to the homestead tax credit.
  7. Restore local government aid funding.
  8. Restore health and human services cuts.
  9. Tax cuts for businesses and wealthy to create jobs.
  10. Money for the Vikings stadium.
Bonus suggestion: Provide a down payment on Zygi Wilf's next townhouse.

Thursday, December 1, 2011

The Collapsing Business Plan of American Higher Education

The dominant business model for American higher education has collapsed, taking with it the financial integrity, academic quality, access, and independence that college and universities once enjoyed.

Since the end of World War II two business models have defined the operations of American higher education. The first was the Dewey model that lasted until the 1970s. The second, a corporate model, flourished until the economic crash in 2008. What the new business model for higher education will be is uncertain, but from the ashes of the status quo we see emerging one that returns to an era before World War II when only the affluent could afford college and access was limited to the privileged few.

Model I: The Dewey University

The first post-World War II business model began with the return of military veterans after 1945 and it lasted though the matriculation of the Baby Boomers from college in the 1970s. This was a model that produced an ever expanding number of colleges for a growing population seeking to secure a college degree. It was a model that coincided with the height of the Cold War where public funding for state schools was regarded as part of an important effort to achieve technological and political supremacy over communism. It also represented the expansion of more and more middle and working class students entering college. This was higher education’s greatest moment. It was the democratization of college, made possible by expansion of inexpensive public universities, generous grants and scholarships, and low interest loans.

Public institutions were key to this model. They were public in the sense that they received most if not all of their money either from tax dollars to subsidize tuition and costs or federal money in terms of research grants for faculty. The business model then was simply–public tax dollars, federal aid, and an expanding population of often first generation students attending public institutions at low tuition in state institutions. Let us call this the Dewey business model, named after John Dewey, whose theories on education emphasized the democratic functions of education, seeking to inculcate citizenship values though schools.

Model II: The Corporate University

Yet the Dewey model began to collapse in middle of the 1970s. Perhaps it was the retrenchment of the SUNY and CUNY systems in New York under Governor Hugh Carey in 1976 that began the end of the democratic university. What caused its retrenchment was the fiscal crisis of the 1970s.

The fiscal crisis of the 1970s was born of numerous problems. Inflationary pressures caused by Vietnam and the energy embargoes of the 1970s, and recessionary forces from relative declines in American economic productivity produced significant economic shocks, including to the public sector where many state and local governments edged toward bankruptcy.

Efforts to relieve declining corporate profits and productivity initiated efforts to restructure the economy, including cutting back on government services. The response, first in England under Margaret Thatcher and then in the United States under Ronald Reagan, was an effort to retrench the state by a package that included decreases in government expenditures for social welfare programs, cutbacks on business regulations, resistance to labor rights, and tax cuts. Collectively these proposals are referred to as Neo-liberalism and their aim was to restore profitability and autonomy to free markets with the belief that unfettered by the government that would restore productivity.

Neo-liberalism had a major impact on higher education. First beginning under President Carter and then more so under Ronald Reagan, the federal and state governments cut taxes and public expenditures. The combination of the two meant a halt to the Dewey business model as support for public institutions decreased and federal money dried up.

From a high in the 1960s and early 70s when states and the federal government provided generous funding to expand their public systems to educate the Baby Boomers, state universities now receive only a small percentage of their money from the government. In 2004, the State of New York constituted only 29% of SUNY’s funding and 31% for CUNY. As of 1998, New York spent more on its prisons than on higher education. In 1991, 74% of the funding for public universities came from states, in 2004; it was down to 64%, with state systems in Illinois, Michigan and Virginia down to 25%, 18%, and 8% respectively. Since then, the percentages have shrunk even more, rendering state universities public institutions more in name than in funding.

Higher education under Neo-liberalism needed a new business model and it found it in the corporate university. The corporate university is one where colleges increasingly use corporate structures and management styles to run the university. This includes abandoning the American Association of University Professors (AAUP) shared governance model where faculty had an equal voice in the running of the school, including over curriculum, selection of department chairs, deans, and presidents, and determination of many of the other policies affecting the academy. The corporate university replaced the shared governance model with one more typical of a business corporation.

For the corporate university, many decisions, including increasingly those affecting curriculum, are determined by a top-down pyramid style of authority. University administration often composed not of typical academics but those with business or corporate backgrounds had pre-empted many of the decisions faculty used to make. Under a corporate model, the trustees, increasingly composed of more business leaders than before, select, often with minimal input from the faculty, the president who, in turn, again with minimal or no faculty voice, select the deans, department heads, and other administrative personnel.

The corporate university took control of the curriculum in several ways in order to generate revenue. The new business model found its most powerful income stream in profession education. Professional education, such as in public or business administration, or law school, became the cash cow of colleges and universities. This was especially true with MBA programs. Universities, including traditional ones that once only offered undergraduate programs, saw that there was an appetite for MBA programs. The number of these programs rapidly expanded with high-priced tuition. They were sold to applicants that the price would more than be made up in terms of future income earnings by graduates.

This business model thus used tuition from graduate professional programs to finance the rest of the university. Students either were able to secure government or market loans or those from their educational institution to finance their training. Further, the business model relied heavily upon attracting foreign students, returning older Baby Boom students in need of additional credentials, and recent graduates part of the Baby Boomlet seeking professional degrees as a short-circuit to advancement.

This model accelerated with the emergence of the Internet, on-line classes, and was especially perfected with the propriety for-profit schools. In the case of the expansion of on-line programs over the Web or internet, a specialist designs the curriculum for courses, sells it to the school, and then the university hires adjuncts to deliver the canned class. Here, the costs of offering a class are reduced, the potential size of the classes are maximized, and if and when the curriculum needs to be changed to reflect new market needs or preferences, it is simple to accomplish. Traditional schools, seeing this model flourish, began emulating it, expanding on-line programs, often with minimal investments in faculty.

A second way higher education became corporatized was in the increased funding streams from corporations. These funding streams became necessary as a result of decreased public support funding for higher education. One way schools have become more dependent upon private funding is simply by turning to corporate donors either to contribute directing to them, or by way of naming, that is, giving private corporations the right to donate in exchange for naming some part of a school after them. For example, in recent years many business schools have adopted famous names of companies in return for donations or sponsorships.

Overall, the new business model relied heavily upon the expansion of pricey professional programs sold to traditional and non-traditional students who financed their education with student loans. This model took off with the Internet, and was facilitated by a management structure and partnering that drew higher education into closer collaboration and dependence upon corporate America.

The Collapse of the Corporate University

The corporate business model worked–until 2008–when it died along with the Neo-Liberal economic policies that had nourished it since the late 1970s. The global economic collapse produced even more pressures on the government to shrink educational expenditures. But the high and persistent unemployment also yielded something not previously seen–the decline of students seeking more education. The decline came for two major reasons. First, Baby Boomer were aging out into retirement, no longer needing educational training. With that, the Baby Boomlet had run its peak, with the American pool of potential students rapidly decreasingly. In effect, the demand for education had dropped.

Second, traditionally MBA and other professional degrees flourished in tough economic times as individuals used their unemployment as the opportunity to get retrained. But since 2008 that has not happened, in part because of the persistent high unemployment and rise of consumer debt.

Unlike previous post World War II recessions, the most recent one has dramatically wipe out the wealth of consumers–some $13 trillion in wealth was lost–and consumer debt has skyrocketed. Student loan debt has also ballooned and is now greater than personal consumer debt–$829 billion compared to $826 billion. The average student loan debt for a graduate of the class of 2010 exceeds $25,000. In effect, potential students are tapped out–they have no money to finance further education, they see that companies are not hiring, and overall, find little incentive to debt finance for jobs that may not exist. The result? A crash in applications to graduate professional programs including MBA and law schools. From 2009 to 2010, MBA and law school applications declined by 10% for full time programs.

The corporate business model has crashed. It was a bubble that burst much like the real estate one that burst in 2008. But in actually, it was a model waiting to burst. The corporate business model functioned as education Ponzi scheme. Higher education paid for programs by raked in dollars from rapidly expanding professional programs and selling degrees on the promise that the high tuition costs would be worth it to students. But as all Ponzi schemes go, they soon collapse and that is what higher education is now experiencing.

The Next Business Model?

But what is the next business model? In a foreseeable era of high unemployment, decreasing public funding for education, and persistent consumer debt, significant retrenchment will occur along a few models. For one, a few elite universities will continue to exist, serving elites who can afford to pay the privilege of attending them. This model negates the democratic function of higher education that existed since World War II.

Second, expect significant collapse and merger of weaker institutions as they seek to find ways to complete for a dwindling student population and resources. This model decreases access to higher education as the range of college and university choices decrease.

Third, while many for-profit institutions may not be able to withstand market pressures, look to see many traditional colleges and universities will have no choice but to emulate that management style. It may not be a viable business model but given economic pressures for the future, that may be the only one that exists, rewarding a few schools that are able to provide a curriculum that is cheap enough that students want to attend. In effect, the new business model is a hyper-extension of the current model. This may mean even more alliance with corporate America along with curriculum pressures that further de-emphasize traditional liberal arts studies in place of professional education. One sign of that already is the movement to take professional degrees such as MBAs and now offer BBAs instead.

Likely business models for higher education are not good. They threaten to erode the strengths that American higher education enjoyed for years, while at the same time not articulating a plan that is financially sustainable.