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Business Officer Magazine

Take Heart From History

A longer, more global view of economic history can produce conclusions that challenge conventional wisdom. That perspective leads Sylvia Nasar, author of Grand Pursuit and annual meeting keynote speaker, to urge higher education leaders to remain optimistic, even in perilous times.

By Marta Perez Drake

*"The economic prospects of the next generation of college students are as bright as those of earlier generations," contends Sylvia Nasar. "Even the Great Depression, which was about five times more severe than the recent recession, didn't prevent those in the '30s generation from doing dramatically better than their parents. It's important to keep things in perspective." Nasar, who is a journalist, professor, and the bestselling author of A Beautiful Mind (Simon and Schuster, 1998), pointed out in a phone conversation that in the midst of the worst financial crisis since the 1930s, "It turned out that Washington did have the tools to limit the economic fallout and foster a recovery."

Nasar is in a unique position to evaluate the economy, past and present. Her new bestseller, Grand Pursuit: The Story of Economic Genius (Simon and Schuster, 2011), is a sweeping narrative about the invention of modern economics—and the men and women whose ideas changed the lives of virtually everyone on the planet.

Hear Sylvia Nasar

Nasar will speak at the NACUBO 2012 Annual Meeting in the opening general session, Sunday, July 29, and will be available for a book signing immediately afterward.

Nasar's longer, broader perspective on the stunning rise in living standards since the mid-19th century lets her see beyond today's challenges—and provides valuable background to her keynote speech at the NACUBO 2012 Annual Meeting, in the Washington, D.C., area, July 28-31. As the John S. and James L. Knight chair at Columbia University's Graduate School of Journalism since 2001, she also has a keen appreciation of the economic pressures and hard choices facing higher education.

Taking Stock

Grand Pursuit explores how seminal economic thinkers—from Karl Marx and Joseph Schumpeter to John Maynard Keynes and Friedrich Hayek—changed the "dismal" science into a potent intellectual tool that has helped a growing number of societies combine economic efficiency, social justice, and individual liberty.

Does economics actually offer useful insights? "Sure," says Nasar. "Some economists have identified important gaps in the design of our system of bank regulation. For example, banks currently have no incentive to take into account risks that their decisions may create for other banks. For the rest of us, who are trying to navigate and run our businesses, manage our institutions, and plan for the future, we need to focus on what we need to learn from this experience—to make our institutions less vulnerable and more resilient."

After all, says Nasar, "It's natural to extrapolate from recent experience. In good times, we start to think the sky's the limit, and the good times will last forever. Then the stock market takes a nosedive, or there's a recession, and we think the bad times are never going to end. In fact, neither recessions nor expansions last forever. So far, at least, recessions haven't been harbingers of permanent stagnation. Knowing these basic economic facts is pretty useful, not just for us but for our students."

One reason that the recent recession has left us feeling so shaky is not only its lingering economic effects, but the fact that it hit us like a Category 5 hurricane after 30 years of strong growth and mild recessions. "We obviously haven't figured out how to eliminate recessions," says Nasar, "and thus haven't made as much progress controlling our economic circumstances as, say, Keynes hoped in the 1920s. I suppose knowing that economic accidents will occur, Keynes became a value investor after 1929 instead of trying to time the market.

The good news, says Nasar, is that the demand for a college education is likely to recover with the economy. And, increasingly, American families see college as a necessity rather than a luxury.

"However, despite 35 or so recessions in the past 150 years, we have succeeded in achieving ever-higher standards of living and virtually eliminating the kind of material deprivation that was once the norm," Nasar points out. "An increasing number of countries have gotten out of the trap of universal poverty and joined the ranks of middle- and high-income nations. And, as far as the United States is concerned, that's a problem we have solved. We are a very rich country. And, despite our economic problems, we have been and are, even now, getting better and better off."

Look at Past Lessons

Nasar is used to taking the long view. Yes, she says, we had a very bad financial crisis of the kind that we weren't expecting. We had a pretty severe recession—certainly the worst since World War II, and as bad or worse than the downturns in the '70s and the early '80s. "However," she notes, "the fact is that, even now, after this traumatic crisis, our incomes are greater than they were any time before 2000; unemployment is very high, but, it's going down; and our financial system did not collapse. It was shaken very badly in a way that no one thought possible. But the Treasury and Federal Reserve acted decisively, and it did not collapse."

These are matters of fact, says Nasar. "And, the fact that our income—and I'm talking about now, across the whole world—the average income is 10 times higher than it was in Jane Austen's day, in 18th- and early 19th-century England. Our incomes in the United States are twice the amount they were in the '70s. And, our prospects are no worse than previous generations, despite what some people are saying."

Nasar adds, "People have said in every single recession since I graduated from college-that young people of the next generation are not going to live as well as their parents.

"You have to ask what it is that determines the standard of living and quality of life," says Nasar. "It's how much a nation can produce relative to its population; and that, in turn, depends on productivity, how much an economy can produce with the resources—its workforce, land, and so forth—at its disposal. The United States, for example, has the highest income per person in the world, barring Norway; and it also has the highest output per work hour.

"To say that the next generation is not going to live as well as the previous one is tantamount to predicting that average productivity is going to decline over the long term," says Nasar. "That's extremely unlikely."

It has never happened in the past 150 years, says Nasar. Productivity-which determines the average wage, the average standard of living-has dipped during recessions, she explains; it dropped sharply at the beginning of the Great Depression when production collapsed. But, it very quickly recovers from these events.

"Now," says Nasar, "U.S. productivity is 10 times higher than it was back in the 1930s. And productivity is growing, per capita income is growing. So, I would say that the expectation for the next generation to be poorer than the present one doesn't seem plausible—barring a third world war. Even when we had two world wars and the Great Depression, that didn't happen under those conditions."

Broken or Simply Misdirected?

Virtually every business officer and campus leader is convinced that the existing business model for higher education is not sustainable. Tuition and operating costs continue to rise faster than inflation, federal funding is likely to shrink, and debt levels are uncomfortably high. At the same time, there's more competition, including that of online learning sites.

The good news, says Nasar, is that the demand for a college education is likely to recover with the economy. And, increasingly, American families see college as a necessity rather than a luxury.

"The problem isn't that there aren't a lot of customers," explains Nasar. Enrollment is still near an all-time high. That said, a lot of institutions did significant building, took on large amounts of debt, and operated on the assumption that enrollment would grow by leaps and bounds. Now they are stuck with high levels of debt and overcapacity.

"One thing that really struck me is that surprisingly few colleges and universities go out of business. In contrast," explains Nasar, "if you look at other businesses, there's a great deal of turnover. It's much harder for colleges and universities to consolidate, merge, or shut down—to correct mistakes, to reverse bad decisions, to adjust to changing climates. It's easy to expand activities, and it's very hard to scale them back. That is the chronic problem."

Rethink Globalization's Reach

With globalization a buzzword in higher education circles, together with speculation as to how international competition is affecting learning and institutional growth, Nasar thinks that people tend to really overestimate the impact of globalization and exaggerate its impact on the economic success or failure of an individual economy.

"Globalization means more integration and more competition. However, everything is relative. If you think about what we do in the United States—where do most people work? where do we make most of our income?—it happens to be in industries like health care, education, and services. These disciplines, by and large, are not exposed to a great deal of international competition. And, very few people, anymore, work in agriculture, manufacturing, mining-those areas that are much more globalized and exposed to foreign competition than are the services."

Nasar goes on to explain: "If you want your roof replaced, you don't import a roof from halfway around the world. The service is provided on the spot. So, that type of product or service is much less exposed to foreign competition. At the end of the day—and this is one of the most striking things about the data on the long-term rise in living standards—there are huge disparities in the economic performance of individual countries. And, these differences, rather than shrinking over time, have persisted.

"That phenomenon suggests that what you do locally matters; it really trumps those global forces of integration. I think that's a really, really important thing to know. Because, again, it suggests that what you do, the choices you make, are a lot more significant than these vast forces that nobody can control.

"Like businesses, colleges and universities have to understand their market and respond to the changing demands of consumers. And, in every category, some manage much better than others. Probably a lot of effective responses can be found among your very members."

As in any industry, Nasar says, there are institutions that are much better at figuring out what their target market needs and wants and how to deliver those things at the lowest-possible cost and highest-possible quality. "And, if the same thing is true in higher education as in business, it's also probably true that there's usually a huge gulf between the leader in the industry, the people who are the best-practices institutions, and everybody else," says Nasar.

That gap, which Nasar calls a "productivity gulf," suggests that "you look at who's doing best in a given area or initiative and try to imitate whatever it is—try to apply it to your own institutions. There's a huge opportunity there. And, probably most institutions aren't anywhere close to making the most of the resources they already have."

The traditional lament is that colleges and universities don't have enough resources, notes Nasar. "Maybe the problem is not a lack of resources, since higher education seems to be absorbing more of those all the time, but it's very hard to shut things down when they turn out to have been based on a bad decision."

Transformational Trends

Having been an economics correspondent at Fortune, U.S. News & World Report, and the New York Times—and codirecting the master's program in business journalism at Columbia—Nasar is no stranger to industry restructuring. "We're constantly complaining that our industry is in turmoil, and consolidation is everywhere," she admits. "We think that 'if only things were like the good old days when newspapers were basically cash cows and ways to print money.'

"We lament," she says, "instead of recognizing that we need to make better use of our resources. And, that is going to be a good thing. Obviously, not everyone is going to survive, and the survivors will have to make hard choices. With this much greater competition, it's certainly bad for people who are getting laid off and squeezed out. It's regrettable for those media organizations that have gone under. But, it's good for the consumer. And, similarly, all the trends that are increasing the competition in higher education are going to be good for the consumer."

Unlike businesses, selective colleges turn away most of their potential customers. For a few years at least, they'll probably turn away fewer. That means it will get easier to get into the college of your choice, something that will make a lot of parents, students, and guidance counselors very happy.

In the end, says Nasar, for individuals and individual organizations, "it's about getting on the right side of those technological trends and figuring out how to operate in this environment—if not at a profit, at least not at a loss."

In her roles as both a professor and a journalist, Nasar recognizes that students and young professionals know more about technology than many of their instructors and managers ever will. "So, I'm not going to be the one teaching how to use Twitter," she says. "My very personal view is that what universities have to offer is not reproducing on-the-job training or helping people keep up with technology. It's about teaching analytical skills and data skills that you will need to apply in such a fast-moving technological environment.

"So, in a sense, the more the technology changes, the more dependent you become on the individual's analytical and verbal skills and the depth of their theoretical knowledge. Those are the things that you don't learn on the job—and that you can't learn on the job. But, that type of knowledge is really important to your long-run success in a journalism career. They are the skills that, certainly, in our program at Columbia, we focus on.

"These are things that students go to universities to learn," Nasar says. "To have something to say and be able to say it quickly and effectively, you have to fall back on your ability to reason, your ability to find and analyze data, your ability to draw conclusions and to make arguments. And, of course, your ability to express yourself. Those are skills that, actually, are what universities nurture in a way that no other institution in society really does. That's your unique kind of comparative advantage."

MARTA PEREZ DRAKE is vice president for professional development at NACUBO.