Stephen Hsu worked for a time as a vice president of a university and notes that administrators are a different group:
The top level administrators at universities are usually drawn from the faculty, or from faculty at other universities. After being a top level administrator at a Big 10 university, and meeting provosts and presidents at the other top universities, I have a pretty good feel for this particular collection of people.
You can imagine what it is that makes someone who’s already a tenured professor in biochemistry decide they want to take on this huge amount of responsibility and maybe even shut down their own research program. They are very, very careerist people. And that is a huge problem, because incentives are heavily misaligned.
The incentive for me as a senior administrator is not to make waves and keep everything kind of calm. Calm down the crazy professor who’s doing stuff, assuage the students that are protesting, make the donors happy, make the board of trustees happy. I found that the people who were in the role so they could advance their career, versus those trying to advance the interests of the institution, were very different. There were times when I felt like I had to do something very dangerous for me career-wise, but it was absolutely essential for the mission of the university. I had to do that repeatedly.
And I told the president who hired me, “I don’t know how long I’m going to last in this job, because I’m going to do the right thing. If I do the right thing and I’m bounced out, that’s fine. I don’t care.” But most people are not like that.
In economics, there’s something called the principal-agent problem. Let’s say you hire a CEO to manage your company. Unless his compensation is completely determined by some long-dated stock options or something, his interests are not aligned with the long-term growth for your company. He can have a great quarter by shipping all your manufacturing off to China, have a great few quarters, and get a huge bonus. Even if, on a long timescale, it’s really bad for your bottom line.
So there’s a principal-agent problem here. Anytime you give centralized power to somebody, you have to be sure that their incentives — or their personal integrity — are aligned with what you want them to promote at the institution. And generally, it’s not well done in the universities right now.
It’s not like it used to be that, “Oh, if Joe or Jane is going to become university president, you can bet that their highest value is higher education and truth, that’s the American way.” It was probably never true. But they don’t claw back your compensation as a president of the university if it later turns out that you really screwed something up. You know, they don’t really even do that with CEOs.
But the academy has done fabulously well the last fifty years, sucking up huge amounts of money on expensive campuses full of high salaried people. That they are parasites propagating damaging social trends doesn’t bother anyone on the inside. The CEOs of the larger society could improve things by shutting them all down and auctioning off the assets.
Shipping off all your manufacturing to China gives a few great quarters, a few great years, possibly even a few great decades. It works pretty well for AAPL.