The Nature Of The University

Content, method and origin of the studyHuman learns through three methods: one is self-sufficiency, in other words, learning by oneself; another is market transaction between teachers and students, for example, family education; and the last way is to study in the university. Through self-studying; family teachings as well as public schools, human beings get ways to educate themselves."Why do we still need universities while market transaction can maintain its predominance in the postsecondary education market?" This is an old but also new issue, which is defined by the author to be "the problem of the nature of the university", and then this problem is analyzed under the framework of modern theory of the Firm . The origin of modern business theory was the classical thesis by Ronald Coase in 1937:the nature of the firm, and when Coase won Nobel Prize for Economics in 1991,the Modern theory of the Firm had been developed to be a relative completed theory after the progress in the 70s to 80s of the twentieth century. As a branch of New Institution Economics, the Modern theory of the Firm tried to explain problems from a total different way from traditional study dependent on the analyses of human, history and social science. The Modern theory of the Firm consists of some basic points, such as the nature of the firm, separation of ownership and control rights, rank structure and capital structure within the firm, and so on. Although universities were not studied directly in modern business theory, this theory was rather enlightening for us to explore the problem of university.The problem of the nature of the university was firstly put forward by the author when teaching Modern Theory of the firm to students in 2001. At that time, he drew the conclusion: the reason of existence of universities is that it can reduce transaction cost compared to market transaction. Transaction cost is the cost that is paid during the process of searching objects, negotiating with competitors and supervising the enforcement of the transaction. In short, transaction cost consists of searching cost, negotiation cost and enforcement cost. Through market transaction, both the teachers and students have to spend plenty of searching cost, negotiation cost and enforcement cost in order to finish even one course; while with the arrangement of university, the two parties are able to reduce enormous transaction cost. What a teacher has to do is just to sign only one contract with the university; what a student has to do is just to sign only one contract with the university, and after that all the transactions are done. Consequently, "the nature of the university is a contract organization aiming at reducing transaction cost". The above thinking logic comes from Coase, for Coase advanced the nature of the firm is to reduce transaction cost as early as 1937.In May 2003, an educational reform of employment and promotion system was started in Peking University, aiming at to bringing in Tenure system flourishing in the USA. Immediately, the reform incurred hot debate in the society. One side of the debate was "function school" of humanists, holding the idea "the university is the senior protection power for all the knowledge and science, fact and principle, exploration and discovery, thinking and testing", "the university is the protector and supervisor of human culture and rational process". This school strengthened the important function of university in discovering the truth, creating knowledge and criticizing condition, and resisted the reform as a result of the business logic or economic logic within Tenure system. The representative figure of the other side of the debate was Zhang Weiying, who is the designer and promoter of this educational reform. Mr. Zhang succeeded in proving Tenure system to be a logical arrangement thanks to detailed explanations for twice using his wonderful ability in modern business theory. He believed Tenure system could guarantee function of university, so that the university could be managed after institution innovation on the basis of business logic. Both debaters put forward much smart idea, and their contributions help a lot not only in realizing the function, mission and institution arrangement within university, but also calling back the university spirit, which has been missing for a while in the twentieth century in China.The author concerned all the way about this educational reform, and treats it to be another Kui-Wei Political Reform as important as the former reform on Peking University launched by Cai Yuanpei. Great respect should be shown for both debaters, for their excellent thinking and humanist care on Chinese universities. However, neither of the two parties studied the most basic problem "the reason of existence of the university in market economy", Even though they have shown great ideas but neither of them could examine the issue deeply and this deficiency of the two parties matters just like sparkling pearls unable to form a beautiful necklace owing to some shortcoming. In fact, without a clear realization of the nature of the university, different arrangements in the university will not come to a logical and consistent conclusion. Therefore, some questions are very important during the study of universities: the reason of existence of universities in market economy; the logical relation between nature of university and arrangement of internal institutions; the different patterns of institution change determined by the nature of the university, and so on. The creative thinking about these questions constitute the primary pointsof the application to National Natural Science Foundation of China------the problemof the nature of the university: a Coasian study. Thanks to the supporting by NNSF, the author succeeds in processing deeper study on the project, and the PhD dissertation here turns out to be one of the final outcomes of the project.Framework and conclusions The thesis consists of five chapters. The problem of the nature of the university is discussed in chapter 1; chapter 2 is about the relation between the university and its teachers; the relation between the university and its students is the main topic of chapter 3; the governance structure of university is studied in chapter 4; in chapter 5 some arrangement of institution are probed on the basis of the analysis of the above 4 chapters. The specific contents of the five chapters are as follows:Chapter 1 "the problem of the nature of the university"Firstly, raise the problem of the nature of the university; strengthen the significance of this problem. Secondly, review the research on the nature of the university. And then, construct the frame of transaction cost on the nature of the university and analyze the factors determining scale of university. Lastly, generalize the system of university institutions and believe "economic firstly" "commonweal secondly" at all time, therefore, transaction cost on the nature of the university will be applicable in different institution. In this chapter, there are at least five innovative points: 1^st, conclude human education into three categories and change the view on the discuss of "the reason of the existence of university", consequently, premise the follow new framework; 2^nd, realize the difference between "school of function" and "school of nature" on university, so that separate humanists from economists when studying; 3^rd, advance the idea that the university as the central contractor will signtwo kinds of different contracts with teachers and students------the former one issigned in factor market, while the later one in production market, after that, some mistaken ideas such as "students are the product of university", "students are internal members of university " are clarified and then a total new viewpoint to see institutional arrangement of teachers comparatively to that of students are proposed successfully as a result of the author's contributions; 4^th, distinguish the organizational scale of university from the production scale of university, and generalize the patterns of the two scales; 5^th, treat university institution to be "twoness-pattern", and guess public educational institution is just a particular one within non-profit institutions.Chapter 2 "the arrangement in factor market between the university and teachers: Tenure system"On the basis of transaction cost on university and contract relation between the university and teachers, Tenure system is understood an institutional arrangement for sharing residual profits indirectly in non-profit organization by teachers. The conclusion is drew according to the process: teachers as the owners of human capital are the most specific elements in universities, so there is a need to motivate them within universities; at the same time, universities are not able to share stocks and distribute profits as a non-profit organization; in order to solve the problem, we have to use Tenure system as a motivation to promise teachers residual profit. Five parts consist of chapter 2. Part 1 is about eight aspects of Tenure system, after questioning other positions in part 2 and analyzing the nature of Tenure system in part 3, logical testing on Tenure system based on residual profit are the key points in part 4. The aim of the testing is to explore the eight aspects, and finally Tenure system proved to be wonderful to all the aspects. In part 5, another kind of institutional arrangement is discussed: Tenure Evaluation as dynamic mechanism of contract between universities and teachers, through the study of explanation power of Tenure system to Tenure Evaluation, the author finally proves the two systems are as consistent as imagined before. All the standpoints above come to one conclusion: Tenure system is rational and logical, and is the result of transaction cost on the university.Five other points are clarified during the explanation of chapter 2: 1^st, Tenure system does not equal to lifelong employment; 2^nd, Tenure system is different from "partnership institution"; 3^rd, Tenure system is advantageous on cost compared to short-time contract; 4^th, Tenure system is actually a options to non-Tenure teachers, while for Tenure teachers, the system is changed to be offered-optiona in proceeding; 5^th, for all the teachers, Tenure system is a motivation mechanism, while for the university, venture mechanism. Chapter 3 "the consanguineous market contract between universities and students"An important originality in this chapter is the suggestion of the new concept of the consanguineous market contract. It also summarizes the pedigree continuum of consanguineous market contract in this chapter. Consanguineous market contract vividly describs the special long-term market transaction relationship that cannot be thrown off throughout his life once a student sign a contract with a university. Because the relationship between universities and students is market transaction, the two sides will bargain about the transaction value, that is the decision of the tuition; because the relationship between a universities and a students is an long-term market transaction, there will be the issue of the allocation of residual rights of control and the preventive problem of opportunistic behavior; and because of the consanguineous market contract between a universities and a students, the behavior of themselves will have great influence upon each other even the transaction is over, not only should both sides choose transact subject with discretion before hand but also design related system to make sure that the influence left by both sides afterwards is optimistic.This chapter is divided into four layers to analyze in depth the above-mentioned relationship between universities and students and various problems inducing from it. Some new ideas of it are: transact subject between universities and students is knowledge, never students are the products of the universities, nor the interior members of the universities; knowledge value and knowledge price are two different concepts. Of all the transactions between universities and students, only those prices can be fixed will be involved in the transaction; Market system will not result in expensive tuition of universities. The appropriate fund from government will not change the nature of the Knowledge transaction price; because of longer existence and more transaction frequencies, the universities will care more about the reputation of themselves than the students. Universities should hold the residual rights of control of the students. In order to relieve the weak position of the student in the transaction, measures should be taken to avoid as much as possible the opportunistic behavior of the universities, but which should be at the precondition that it they would not hurt the free transaction. The guarantee the three rights of free selection, free transfer and free dropout, the promotion of the Voucher System and to sponsor a student through market are in accordance with the nature of the university; Endowment from the aluminum could be regarded as the compensation of the tuition of the students afterwards. Awards to the students can be regarded as the payment in advance to the elite aluminum for their contribution to the universities.This paper also figures out the relationship between the knowledge transaction and diploma transaction of the universities and students. It pointed out that students will not need the diploma if the universities work to satisfy the need of the intellectuality, because the students are quite clear how much they benefited from the universities; But when students have the need of employment, they will ask the diploma from the universities to reduce the signaling cost for the student to show their competencies because of the "intangibility" of the knowledge and the personal dependency to the employer. Non-other but the diploma helps to establish a consanguineous market contract between universities and students. But the diploma transaction doesn't change the knowledge transaction relationship between them, because diploma is only a kind of promotion tool for the sale of the knowledge as assistance to signaling.Chapter 4 "the governance structure of universities based on Non-profit distributing"This chapter is to discuss about the governance structure of universities on the basis of the Non-profit distributing of universities. The first new viewpoint is that because non-profit distributing is not the a cause that pre-existed, but a result of market competition, it cannot become the basis of university system design. As non-profit universities are more competitive than for-profit universities, profit universities can be constrained to a narrow extent, especially to the domain that need not sign a "consanguineous market contract". This part then summarized three basic conditions for the existence of the for-profit universities. But non-profit distributing may also result in the absence of the owner in universities, scarcity of competition and the performance appraisal difficulties. It means that as non-profit distributing, is only a necessary condition, universities should design it's governance structure to solve all the problems originated from it.This chapter secondly discussed the governance structure design of universities, it developed a "three dimension governance structure" model to dispose the power from the board of directors, administration and academics properly. It put forward the idea that the principal should be professional, the power restriction the administration on the every respect, such as teacher's promotion, the administrative leaders selection, and so on.This chapter finally discussed the notable feature of the university of "strong common governance, weak contingent governance" owing to the governance by Stake Holders Interest Groups. It points out that universities should not undertake the "non-profit governance model" because it's not a clear-cut governance model.Chapter 5 "Several system design for Universities of China"On the basis of the above analysis, this chapter focuses on the discussion of four issues: facilitation of the reform of the universities of China by adopting the market principle, tenured professor system in the transition period, maintenance of the rights of the students, and the design of autonomy and governance structure. It comes to realize that reform of universities of China hould be implemented firmly because it is just in accordance with the objective request of the nature of the universities. And tenured professor system should be carried out accordingly because it can greatly improve the productivity of the teachers. The construction of the system of the maintenance of the rights of the students should protect the equal transaction relationship between students and universities, which is coincide with the nature of the universities. Allowing the autonomy of the universities, reforming the "Communist Party Committee Leading", trying and innovating and facilitating the construction of governance structure are the pre-conditions for the high-efficiency of university performance. The possibility of success of the universities can be higher only in the direction of the theory of the nature of the university.