International Money Pile in Cash and Coins
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On this blog, we talk a lot about internecine publishing issues, broad business topics, and overarching technology trends. But one thing we can’t ignore is the larger economic picture around the world, where inflated real estate values, opaque risk vehicles, and bank liquidity all collapsed within a relatively short period, thrusting Western economies into a downward spiral few are grappling with competently. As Winston Churchill said in 1936:

So they [the Government] go on in strange paradox, decided only to be undecided, resolved to be irresolute, adamant for drift, solid for fluidity, all-powerful to be impotent.

The response overall has been framed politically in parochial images of home budgets and bank books — austerity in tough times, not spending money you don’t have, and the like. But austerity for national economies struggling to regain lost wealth and find growth again is a faulty strategy. Economies that have attempted it — Spain, Greece, France, just to name three — are all worse off than they were when the problems started. Unemployment in Spain is now at 21%, and retail sales are down 6.6%. Greece’s austerity measures led to riots and are likely to lead to more convulsions. France is in a vicious cycle of austerity leading to scarcity leading to higher prices leading to lower consumption leading to lower revenues leading to slower growth leading to more austerity and around again.

As the United States debates increasing its debt ceiling while cutting government spending, it seems we here are also contemplating the failed path of austerity, even as joblessness spreads and the prospects for a near-term recovery diminish.

The chilling part of the current trends in thinking is how “baked in” the notion of austerity and a balanced checkbook are becoming. It’s unprecedented in American history, according to the American History Guys who run the BackStory podcast (these guys are no flakes — one is the Thomas Jefferson Memorial Foundation Professor of History at the University of Virginia; another is President of the University of Richmond and served as Hugh P. Kelly Professor of History and Dean of the College of Arts and Sciences at the University of Virginia; and the third is Professor of History at the University of Virginia and Director of the Fellowship Program at Governing America in a Global Era Program at UVA’s Miller Center of Public Affairs).

The notion of debt, which is becoming newly toxic in American politics, once served to bind the nation in the early history of the United States. In fact, by relieving states of their debts, the federal government was able to unite various factions in a way other enticements couldn’t. But while debts were viewed as a way of aligning interests and a reasonable amount of debt was accepted as necessary for growth and prosperity, the American political enterprise has always accepted that paying off debts was also necessary — mainly by raising revenues through taxes, bond drives, and other sensible approaches.

Now, however, we have profligate government spending started under a Republican administration with no revenue offsets to lighten the debt burden, while the same Republican party is refusing tax increases and insisting on sizable cuts to services for the poor, sick, elderly, young, and middle-class.

When the real estate bubble popped, it decimated the middle-class. In the United States, there has only been the most tepid of political responses focused on reviving this crucial part of the population and economy. Similar weak responses have led to deep and long-term problems for economies around the world:

And make no mistake, the middle class has been ruined: Its wealth has been decimated, its income isn’t even keeping pace with inflation, and its faith in the American economy has been shattered. Once, the middle class grew richer each year, grew more comfortable, enjoyed a higher living standard. It was real progress in material terms. . . . The prosperity of the middle class has been the chief engine of growth in the economy for a century or more. But now our mass market is no longer growing. How could it? The middle class doesn’t have any money.

The middle-class has been a source of growth for many sectors of most economies, but it has run out of coping mechanisms — having both parents work, relying on credit card debt, and finally relying on home values and mortgage debt. With unemployment barely budging, credit cards increasingly unavailable or onerous, and home values sinking, there are no clear options left.

This has very real implications for the growth of higher education overall. With less faith in the future, less confidence in economic improvement, and less money to spend, a major feeder into higher education is withering before our eyes. Austerity at the government level only compounds this, with student loans and financial assistance likely to face the chopping block as well.

Faculty are feeling this, in ways both subtle and unmistakable. A recent story by Leonard Cassuto in the Chronicle of Higher Education shone a light on how stagnation in the economy equates to stagnation for people in academia:

Departments that sought to “improve” did so by hiring high-profile researchers. Notice that I’m using the past tense here. The academic “star system,” as it’s been named, is confronting economic weakness in one of its foundation pillars: The recession is now keeping many ambitious senior faculty members—especially those in the hard-hit humanities—in place.

This has hit the humanities especially hard, with 40%+ drops in openings across universities.

However, lack of mobility between institutions and fewer paths for advancement don’t mean that academics will stop wanting to publish:

The intramural gold standard remains publication. One need not be a published economist to conclude that if most raises are awarded for publication, then most professors will direct their energies toward publishing. And the entire academic value system is built around publication: All of those vexed ranking systems that everyone complains about, but that everyone looks at anyway, measure faculty value mostly through publication and citation records. Publication is still the attainment that is most easily understood across institutional borders—and within them.

What this means for people in scholarly communications can’t be ignored — the pressure to create, expand, and offer publications to a growing and perhaps increasingly tenacious academic community will continue. With scraps left to fight over, the fights could become more heated. Depressingly, the supply-side pressure will be increasing while the demand-side ability to pay will stagnate:

  • For open access publishers, funding from authors could slowly dry up. While there can be significant latency between austerity and diminished funding in aggregate, economics dictate that fewer authors will have access to fewer funds over time.
  • For subscription publishers, price increases based solely on tradition and prior trends will be harder to implement as the academic economy stalls further and revenue options evaporate.
  • For librarians, budgets that are already constrained and difficult to expand will face further cuts and constraints as overarching financial and growth issues at the institutional level bear down.
  • For publishers with significant advertising revenues, the news may be slightly better — the battle for scarce dollars could lead to less attrition in the advertising space. However, as the consequences build over time, these dollars may also start to evaporate. Businesses have shown a tendency to hoard cash during the downturn so far.
  • For ancillary revenues from reprints and permissions, stagnation hits again — fewer new titles or revised editions are commissioned, so fewer permissions are needed; reprint sales slow or begin to shrink significantly as just-in-time begins to look better and better.

This may sound like Chicken Little crying “the sky is falling,” but there is real risk in a long-cycle economic and political era defined by austerity, analogs to household budgets as national budgets, and disdain for governmental power and spending. It has astounded me how weak and ineffectual President Obama has appeared in the face of opposition on these issues, and he is not alone — the UK, Spain, Greece, Ireland, France, Japan, and other nations have at various points over the past 10-20 years (most of them more recently) embraced austerity, only to see it stall their economies, fail to solve their debt problems, drive business investments elsewhere, and compound the problems they sought to address.

As a small part of this larger story, we can’t ignore the potential implications for research funding, information funding, and scholarship.

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Kent Anderson

Kent Anderson

Kent Anderson is the CEO of RedLink and RedLink Network, a past-President of SSP, and the founder of the Scholarly Kitchen. He has worked as Publisher at AAAS/Science, CEO/Publisher of JBJS, Inc., a publishing executive at the Massachusetts Medical Society, Publishing Director of the New England Journal of Medicine, and Director of Medical Journals at the American Academy of Pediatrics. Opinions on social media or blogs are his own.


11 Thoughts on "The Economic Mess — A Factor We Cannot Ignore"

Perhaps as a result of the austerity and the chaos, true OA – the Platinum model of collaborative publishing (with or without subsidy) will finally impinge upon the consciousness of university administrators and faculty? Most of the journals in the DOAJ follow this model, but the ‘author pays’ model is the only alternative to the subscription model that gets air space. As publisher of Information Research I have to declare an interest here 🙂

The Scholarly Kitchen is just a wee bit less interesting when my favorite blog Editor (seriously!) offers a partisan polemic, attempting to disguise it with a gossamer fig leaf of publishing-relatedness…. Careful with your brand proposition! (But then, you knew I’d say that :-))

On a more serious note, I try to give an honest perspective, but it is my perspective — same as it is for technology, business models, publishing practices, the role of innovation, or any other topic. To pretend not to have a point of view isn’t conducive to getting something written in this format (a blog). Luckily, the brand proposition of the Kitchen also includes commentary, which outnumbers us poor sad bloggers by about 8:1 right now, so thank you for bolstering the brand with your comment.

Economics have, sadly I think, become overtly political, when in fact they should be pragmatic — improving the health, safety, well-being, and prospects for the citizenry. In that regard, a pox on both their houses, so to speak. Nobody seems to be willing to stick up for the little guy these days. And that’s just wrong.

If you want an alarming view of the future, take a look at what is happening in Texas, which I now call home. Led by the Texas Public Policy Foundation, which has insinuated itself into the highest reaches of the government here, efforts are under way to radically transform universities with the “seven breakthrough solutions,” the most insidious of which is to prioritize teaching over research and evaluate faculty productivity mainly with respect to the former, as assessed by student evaluations, among other dubious metrics. If the TPPF has its way, Texas’s top-tier research universities will be downgraded to diploma mills offering a bargain-basement type of education. This strategy of course has implications for scholarly publishing of the direst kind. Even apart from this initiative, budget cuts in this state are affecting scholarly publishers. I heard from one of the smaller university presses that it will have to cut its list back by nearly 50% because of lower university support.

To supplement Sandy Thatcher’s comment from the UK, it seems that we have governments that are determined to bankrupt (in research terms) our universities. The State of Texas in your case, the UK government in ours. In the UK, ironically, this all stems from our politicians’ desire to copy the USA – in practically everything. With the result that we are in a bigger mess than the USA! (Well, perhaps not quite 🙂 First, one government introduced fees for students – up to c.$4,800 a year, then another government gives permission to increase fees to $14,000 a year – whlle in Scotland (part of the UK), there are no fees and in Europe fees for programmes taught in English at Maestricht University in the Netherlands, for example, are about $2400 and in Sweden, zero. So what are students going to do? Vote with their feet of course and pop across the Channel or the North Sea. At the same time the government is reducing the number of visas for overseas students to cut the ‘immigration’ numbers – to keep its right wing happy, which means that universities will lose income. Oh yes, and students are now ‘customers’ and we know that the customer is always right, yes? The prioritising of teaching over research for many institutions is already with us as the government tries to compensate for an earlier stupid decision to convert the polytechnics (aimed at preparation for the world of work and carrying out little research but having links to local business and industry) into universities. Welcome to the wonderful world of higher education!

Sandy “If you want an alarming view of the future,” … take a look at the Club of Rome report from the 1960’s, or the revisions thereof. We humans have been heading for a cliff, brick wall, ditch, or other calamity for a long time, and we’ve know it, but the only thing that we have done is “go faster”. Yes the sky is falling in but exactly which of the likely apocalypses will get us first. In theory, the economic system should be the advance warning … and may be that’s what we are seeing (except that the economic system has, in practice, very little foresight.)

The answer to the Club of Rome doomsayers was given by Julian Simon in his book “The Ultimate Resource” (1980) that I published at Princeton University Press. I’m not sure, though, that Simon’s answer applies to our current predicament in scholarly publishing.

“The Unlimited Resource” isn’t an answer; it’s a prayer. It replaces the absurd assumption that a finite resource is infinite with an equally absurd assumption that there are an infinite number of finite resources. It mistakes the economic mechanism that responds to a problem with a guarantee of a solution. In the end, it is no more than a prayer that “we will be able to fix any problem.” Yes, a shortage causes prices to rise, and a higher price motivates a search for more resources and for substitutes. A search does not guarantee success. Do we not find unicorns because the price isn’t high enough? The price of real estate seems pretty high; how come someone doesn’t find a new continent every few years? Is it possible that there are no unicorns to find at any price, or that we have found all the continents that there are to find?

By definition substitutes are inferior in some way to the original. A shortage of food causes the price to rise, which motivates farmers to apply more fertilizer to grow more food. But the number of people who can’t afford food goes up because they can’t afford the cost of the fertilizer. The price of fuel goes up so farmers make their corn into bio-fuel, which is fine, except for the people who were counting on eating the corn. And it’s a bit of problem that farmers are using fossil fuels to make fertilizer to grow corn to make bio-fuels to substitute for the fossils fuels. Substitution is inherently diminishing returns, and ultimately exponentially diminishing returns.

The relevance to Kent’s point is that we have been ‘substituting’ in the US economy.

In the US, the transfer of wealth from the rich to the poor is overt – it is primarily government transfer payments funded by progressive taxation. The transfer of wealth from the poor to the rich is covert, and typically not recognized or understood by its victims. Enrichment by taking wealth is inherent unsustainable. Eventually there is no more wealth to take. Kent enumerates the substitution of unsustainable mechanisms to extract wealth from the poor, as each is exhausted. The poor have no more hours in the day, or days in the week, weeks in the year to work. They have no more people in the household to work. They have no more savings in the bank, no more equity in their house, and no more capital in their retirement funds to raid. They have no more future earnings to be mortgaged in debt. The substitution becomes raiding the ‘less-poor’ to benefit the ‘more-rich’ and it will go on until the middle class disappears and there are only masses of poor and a few super-rich. Then the super-rich realize there’s no one else to steal from and that their riches are worthless without a middle class.

Except that while the middle class in the U.S. is shrinking in wealth and power, it is growing significantly, especially in the BRIC countries, which will generate substantial new markets for U.S. export-oriented industries. Those industries, while U.S. owned, may draw much of their labor force from outside the U.S., so that the benefits to the U.S. workforce may be limited.

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