Thursday, January 22, 2009

Transparency and Punishing Success

Even though they're on completely different subjects, somehow Orthonomics' latest posts made me think of this.
And those of us who manage the public's dollars will be held to account -- to spend wisely, reform bad habits, and do our business in the light of day -- because only then can we restore the vital trust between a people and their government. ~ President Barack Obama, Inaugural Speech
...if only there were those in the Jewish community who would say the same. From charities to schools, the Orthodox Jewish world spends much of its time hiding its books. The need for this to change is paramount, and it is difficult to ascertain why there is such a reluctance on the part of Jewish institutions to show transparency in their revenues and expenses.

It seems worthwhile to take a few educated guesses as to why this might be, and feel free to add to or argue against any of these; many will be applicable in rare situations, more would be true in most situations. After this quick list, it is worth elaborating on another possibility which will make some people uncomfortable. For simplicity's sake, we will use schools as an example:
  • Illegal actions - A reason to avoid transparency is if the school is doing something wrong. Hopefully rare or non-existent, but possible.
  • Salaries - A school might not wish to disclose how much it's paying teachers and administrators, whether due to privacy or serious overpayment, particularly of teachers who have stayed a long time. Understandable to an extent, but one of the most likely places for wasting funds.
  • Inefficiencies - The main reason to open up the books is the main reason schools might not want to: They're horribly inefficient in their use of assets. They waste money all over, they tend to create numerous unnecessary positions then hire managers to oversee them. In all, a lot of people are being paid to do very little.
  • Misuse of funds - Similar but different to the first two. If schools are run by tight-knit groups, as is often the case, there is a tendency to favor people from that group and there might be a large portion of funds siphoned off to that group. Transparency would cause an uproar.
But a more troubling explanation, while probably secondary to the others, is that of disparity.

It's worth first using a quick example from today's United States. One of the largest problems the government is now facing due to its ill-advised attempts at bailing out the troubled firms of Wall Street is the view that safe, successful, and smart companies are being unfairly punished for being: Safe, successful, and smart. Bank of America, which by all accounts did the country a tremendous favor in offering to take on both Countrywide and Merrill Lynch and their toxic assets before they failed, wanted to lower the price being paid for Merrill to avoid hurting its own shareholders. Instead, it is essentially being forced by the government to pay the higher amount, give up a stake of BoA to the government, and all while reducing their own dividends to shareholders. In exchange, they get protection on bad assets that were almost all Merrill's to begin with. It's the equivalent of a neighborhood asking for a volunteer to care for an important neighborhood pet, then telling the volunteer when they ask for extra leashes that they'll have to pay extra for them, they're not allowed to spend money on their own family, and the neighborhood will cover the pet's damages.

It would be interesting if a similar skewering of the successful happens in the frum community. In schools, tuition costs make up a certain percentage of the revenues of a school. Rather than charge what it actually costs per student in tuition, and then make up the difference for those who cannot pay in full, schools often charge higher amounts knowing that the more successful parents will still pay in full, and they'll get whatever they can from the others. If schools were more transparent, the disparity would be out in the open - and there would be a tremendous backlash, particularly against those who choose not to work. Imagine paying $40,000 in post-tax money in tuition for four kids a year, while discovering that another family with four kids is paying $16,000? That's the equivalent of earning $40,000+ more a year (pre-tax), for the same utility.

When one considers this, it is easy to understand how schools - consciously or not - would be resistent to transparency. Not only would there be a lot of animosity created or suspicions confirmed, but it would reinforce that the educational system's subtle push for kollel in many places is creating a huge drain on the community as a whole. Moreover, those who are covering the costs of everyone else will quickly tire of it, especially those who are working but not wealthy. Knowing that they can barely make ends meet while working hard, but do not qualify for tuition breaks, while others are able to lead seemingly much easier lives while getting those breaks, these working class families will ultimately feel compelled to create their own schools which require lower - but full - tuition payments.

Lack of transparency and punishing success are two major problems facing the Jewish community economically. What's worse is when one is helping to hide the other.