THE RIGHT KIND OF MARKET TEST. Tibor Machan (via Phi Beta Cons) takes issue with those who take issue with market incentives in higher education.

Indeed, in the exchange it is clear that no one likes markets in higher education. Henry Wasser, who is a former academic dean and vice president at the City University of New York, complains that a previous piece in the magazine “ignores the growing and transforming inequalities” that supposedly afflict American higher education. Among these are, of course, “the dominant commercialization of universities in function and psychology,” and “the pervasiveness of the ‘market’ model,” whatever that is supposed to mean in a profession that is dominated by government administration and funding. In response to this the original author of “Scandals,” Andrew Delbanco, replies that he has elsewhere “discussed most of the themes [Wasser] mentions,” among them commercialization and “the rise of ‘market’ values.”

On one hand, what Professor Machan is noting might be the long-standing argument that when market tests make some people rich and other people poor, that isn't automatically a desirable outcome. It's not always clear that the business fad of the moment is efficiency-enhancing. Consider a comment Russell Roberts makes about the information content of a downsizing.

Pundits everywhere decried the Circuit City layoffs as a greedy corporation trying to inflate the company's profits to ever higher levels while ignoring the human costs. In fact, they were a desperation attempt to keep a company afloat. That revelation of desperation is what caused the stock price to fall. We'll see if Circuit City can survive. The stock market suggests that the odds of survival have fallen.

He's reacting to a James Surowiecki column that notes the fad element in the business model of the moment.

On top of all this, a C.E.O. is likely to look to layoffs as a solution because that’s what almost everyone else does, too. The word “downsizing” wasn’t even invented until the mid-seventies. The waves of layoffs that began at the end of that decade and peaked after the recession of 1990-91 were largely a response to crisis on the part of manufacturing companies swamped by foreign competitors and stuck with excess capacity. More recently, however, downsizing has become less a response to disaster than a default business strategy, part of an inexorable drive to cut costs.

Never mind the loss in efficiency and institutional memory. Therein lies some of the academic discontent with business models and all the trappings of "market-driven" policies. There are more than a few trustees and legislators who labor under the misapprehension that "superior performance" equates to lopping off the poorest-performing 10% of the business after each annual review. (In investments, this policy is a misapplication of the regression fallacy: a trader with a quite satisfactory lifetime record can be awarded a large bonus for a lucky year or fired for an unlucky one. In higher education, such thinking can lead to the folly of abolishing majors in philosophy or mathematics, although a few philosophy or mathematics faculty are allowed to stay around to "service" the majors in those bits of the university that have managed not to be "right-sized" out of existence.)