Tuesday, March 05, 2013

Maximizing Expenditures 

Many years ago I authored an article titled The Economic Behavior of Social Institutions.  By Social Institutions I meant governmental and non-profit organizations. 

My conclusion was that whereas, according to conventional economic thought, commercial companies try to maximize return on invested capital, social institutions try to maximize expenditures.  Actually, they try to maximize achievement, but the economic consequence is the maximization of expenditures. 

I was reminded of that by an editorial in the March 4 issue of The Boston Globe.  It seems that UMass Lowell, a one-time teacher’s college that has evolved into a part of the University of Massachusetts system, has decided to “move all of its sports program to the more competitive Division 1.”  To do that, the University will have to increase its spending on sports from the current level of about $7 million per year to something more like $22 million per year.   The editorial approved, concluding with the statement “If UMass Lowell can move up to Division 1 without driving academics down, the River Hawks [the name of the school’s sports teams] will soar to heights worthy of the school’s growing reputation.”

The Chancellor of UMass Lowell is Marty Meehan.  According to Wikipedia, “Meehan became the chancellor of his alma matter the University of Massachusetts Lowell in 2007. Since becoming chancellor, the university has seen an expansion both in enrollment and in new buildings.”

One might suppose that with the ongoing concern about the high and rising cost of higher education, there would be concern about tripling the sports budget of a state university.  But not so, at least in this case.

Non-profit and governmental health care institutions and the publics they serve typically behave in the same way.  No wonder it is so hard to get them to reduce their costs.  It is contrary to their nature.




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