Collapse of Complex Educational Funding Models

Clay Shirky posted yesterday about the Collapse of Complex Business Models. In short, businesses add one complexity after another with each new complexity adding value to the system… to a point. Initially, each addition brings with it significant marginal value. But eventually, the value added of a new complexity diminishes to zero or, worse, goes negative. Businesses, the argument goes, can’t adjust to the new reality and resort to the most radical simplification possible: collapse.

I realized almost immediately that I’ve been having a version of this conversation related to educational funding for weeks… years, in fact, but the economic turns of the past 12-24 months have brought the difficulties of how we fund education and research (in an academic setting) to the forefront for me.

At a recent conference, I was speaking with a federal agency program officer about funding opportunities. One of the issues on the table was my home institution’s federally negotiated overhead rate: greater than 50%. In other words, if I were lucky enough to be awarded a 200,000$ grant, only about 90-95,000$ would be passed on to directly support the research, pay participants, provide resources, etc. In addition, out of that 90k$ pool, any faculty member participating in the grant would have to be paid based on a percentage of their current annual salary. For long-standing, experienced researchers, this can amount to 10-20,000$ per person. I think you can see where this math is taking us: there’s a paltry amount left to actually do the research!

Observation 1: as a young researcher trying to establish a research program, I’m simply not competitive when it comes to the larger available grant awards.

Observation 2: for the grants I can be competitive on with respect to skills and outcomes, the complexity of the institutional funding structure means that I can’t produce a budget that would convince a grants review committee that enough of the funds would be going to appropriate research activities.

I wanted him to contradict me, to point me in the direction of available funds that were targeted at young researchers, or to point out some flaw in my reasoning. Instead, he agreed. He had heard it before, had seen these forces in action, and admitted that there was no obvious way through. His suggestion: get the institution to waive or greatly reduce the overhead rate.

I admire his gumption, but it brings me to the second part of the problem: there is no sustainable funding model in American higher education at the moment.We’ve been waiting out the economic downturn, more or less intact, by living off of grants monies and endowments that were in place before the crash. Now, as those begin to run out, institutions have spent their metaphoric savings accounts, but there’s still no improvement on the horizon.

In other words, my home institution is laying off staff and faculty, increasing teaching loads, reducing resource availability, requiring unpaid furlough days, deferring maintenance, and generally cannibalizing itself to keep the doors open. Their incentive to waive what they perceive as free money to the institutional coffers is, essentially, nonexistent. In the long run, it’s cheaper for them to fire young faculty (or never hire them into a tenured position in the first place) than it is to waive overhead on federal grants.

Similar issues can be seen playing out in K-12 education in the U.S. at the moment as districts layoff staff and faculty and close schools while enrollments are up.

Meanwhile, there’s genuinely important work waiting to be done. But maybe I’m just trying to add complexity to an already exhausted system on its way to collapse.

2010 April 03 UPDATE: Apparently, I’m not the only one thinking about these issues this week. Stan Katz has posted an article titled Can We Afford Our State Colleges? at The Chronicle of Higher Education that parallels some of my comments.