As the Neil Sedaka song says, “Breaking up is hard to do.” But in our economy, coming together through consolidation has its heartaches, too.
In our economy, the breaking up when a firm goes bust produces a clear and immediately painful loss for everyone involved. The organization that was a vibrant, almost living entity suddenly goes cold. The building that housed the lives, the energies, and interactions of people now stands silent.
All of us to some extent are what we do. A job loss, then, has an emotional content as great as or even greater than its economic impact. The vast majority of people take the punch and move on; some quickly, some only after the passage of time. We find other work and become, in effect, a new and somewhat different version of who we are. But most leave behind a piece of ourselves, too. Breaking up is definitely hard to do.
Firms do not have to go bust to produce this kind of hurt. Just ask the workers at 21st Century Fox. Their company was just purchased by Disney — a continuation of the ongoing Hollywood studio consolidation. There have already been layoffs and terminations and to the workers their jobs at Fox seem tenuous at best.
Layoffs and cutbacks are a typical byproduct of consolidation in an industry. It is economic pressure, evident in the disappearance of profits, that spurs consolidation because of its promise of gaining greater internal efficiency by expanding market share and eliminating duplication of expense centers. And like many economic plans, sometimes it works and sometimes it doesn’t.
Non-profit organizations can encounter financial trouble, too. Higher education, if it isn’t a state school, is mostly in the non-profit sector and reports of a college’s financial status are usually limited to alumni letters seeking donations. In Massachusetts, though, non-profit, higher education is making headlines.
Higher education in our country began with Massachusetts and it still has a disproportionate number of elite and highly respected colleges and universities. It is disturbing, then, to read words like “crisis,” “apocalypse,” and “survival” used in describing the situation there.
What brought the issue to the headlines was the sudden closure of Mount Ida College in Newton, a community just outside of Boston. Over a century old, it was a small, private, institution that found itself facing a deficit so large that it could no longer function.
Mount Ida’s decision to conceal the depth of its troubles and to shut down the school without prior notice left more than 1,000 students with a sudden change in plans — from plan to “no plan” and set off a mad scramble to rearrange their lives.
The Massachusetts Higher Education Commission had been warning colleges throughout the state of oncoming financial stresses, but the government’s reaction to the Mount Ida closure thus far has consisted of, guess what, demanding more reports and creating a new bureau, the “Office of Student Protection.”
In addition to the students’ displacement, there are the workers —- the faculty, staff, and support people no longer needed and have lost their jobs. That is as painful in Massachusetts as it is in Hollywood.
Government advice, though wise, cannot change the fundamental causes behind the wave of financial failures and closures of small private colleges. The problem is being caused by a merger of economic and demographic forces whose combined power isn’t going to be stopped by reports. We already have plenty of those, thank you very much.
The economics of higher education does not favor an easy solution. Basically, the cost of college education has been rising faster than inflation for decades. Small private colleges have to compete with big schools for faculty and, of course, for students. But while their costs are “big league,” sources of both revenue and cost-savings are limited and small.
The demographics of higher education also paints a bleak picture. The “bulge” in college-age population has passed, and schools will be facing a declining pool of potential students to compete for.
Mount Ida isn’t the first small college in Massachusetts to fail, and Massachusetts is just the leading edge of the higher education problem. It will become a national problem soon enough and will hit the publicly funded colleges eventually, too.
What can we do about it? The Massachusetts Higher Education Commission has been recommending and encouraging small colleges to consolidate to cut costs — much like the movie studio strategy. In higher education, though, consolidation will only buy some time, and unless we solve the problem of costs, our debt-ridden romance with affordable higher education is coming to an end. Even if we dodge the apocalypse, a painful restructuring still awaits us. Breaking up is hard to do.
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