The Enron Fallacy

Last month Amsterdam students occupied the Bungehuis building on Spuistraat, in protest against the university’s ‘Profiel 2016’ plan to shred jobs and academic programmes. Hardest hit is the humanities faculty, rated in the top thirty globally in 2011, where around 100 staff face the axe. Within humanities, ‘small’ languages such as Arabic, Polish and Italian will no longer exist as majors. Falling enrolment is blamed, though humanities admissions rose from 1417 in 2006 to 1875 in 2010. The cuts aim to save €7 million from 2017; other humanities programmes may be ‘consolidated’ into a generic liberal arts structure.

In the UK and beyond, universities have bought the idea – the Enron fallacy, as it might be called – that the more like businesses they are, the better they’re run. But, leaving aside the philistinism of treating universities as for-profit businesses and education as a commodity like dog food, a lot of businesses are not very well run. Excited by thoughts of the bottom line, academics with mediocre research profiles grab the chance to triple their salary by reinventing themselves as mediocre managers. In the UK this has led to such episodes as the LSE’s Gaddafi Foundation scandal and London Met’s £35 million scamming of its Hefce capitation grant, as well as high-handed treatment of staff thought to damage the brand, as at Nottingham and Manchester Metropolitan.

In the early 2000s, Amsterdam University (UvA) took out loans to fund new building work. In concert with its bank lenders, UvA engaged in fiscal rewiring designed to ensure that, though a not-for-profit and hence not liable to corporation tax, the university could still deduct VAT and interest from its liabilities. On advice from its lenders, it also bought interest rate swaps on those loans as a hedge. The swaps aimed to shield borrowers from jumps in the interest rate by fixing a ceiling at 5 per cent. The notional value of the derivatives portfolio ballooned from €35 million in 2002 to €225 million in 2012. But as rates have stayed well below the level fixed by the swaps, their market value has fallen, accruing a loss of €63 million by 2012. A constant concern of UvA management has been to maintain its solvency (income to liabilities) ratio, which depends on the equity valuation, and hence income, derived from its real estate portfolio. The banks can in effect shape university policy by targeting academic units deemed to yield low or negative income.

All this has called forth a consortium of opponents to the cuts and restructuring, including De Nieuwe Universiteit (DNU), which aims to set up chapters in universities across the Netherlands. In Amsterdam, the Rethink UvA movement has presented a 'proposal to democratise and decentralise the UvA management with the goal of creating an academic community that is capable of running itself’. DNU has demanded greater accounting transparency and guarantees on job security. Languages lined up for the chop have received a two-year stay of execution, though without any extra cash. A memo from the law faculty to the Dutch education minister and UvA management notes the university’s ‘lack of democracy, participation and transparency, top-down decision-making, the influence of outdated profitability thinking on education, the growth of temporary and flexible contracts, and the imbalance in the valuation of research vis à vis teaching’.

After an eleven-day stand-off, the Bungehuis occupation ended on 24 February. Talks between DNU and university management broke down and police went in to evict the occupiers. Students promptly moved to occupy the nearby Maagdenhuis, the university’s administrative HQ, where they remain. DNU is also calling for a moratorium on sales of university real estate. Meanwhile UvA has followed through on its plans for the Bungehuis – flogging it off to the upscale gentlemen’s club chain Soho House in a deal worth €50 million.