ITT Technical Institute had a nearly fifty year reputation and a massive infrastructure of 130 schools across the United States that left students feeling confident in their for-profit choice for a quality education. Although enrolled students can try to transfer their course credits or seek forgiveness on their federal student loans, the closure of the university costs 45,000 students in terms of years and broken dreams. Where 8,000 ITT employees face the loss of their jobs, hundreds of thousands of ITT alumni now bear the name of a discredited and defunct school on their resumes, which raises concerns about their credentials and future. For everyone else, the death of ITT Tech offers several lessons in education and business.
As a for-profit school, ITT Technical Institute set out to prove the power of choice and the incentive of profit could result in improved educational outcomes. With a weak graduation rate across its schools and the eventual loss of accreditation, among other issues, ITT Tech was clearly not an academic leader. Costing between $45,000 and $100,000 a year, ITT demonstrated profit is often just profit. One lesson here is that profiteering alone does not improve the quality of a service or reduce the cost of providing that service. Only when the added expense of profit improves the quality of a service and/or reduces the cost to deliver that service is profiteering beneficial. Profit becomes beneficial when the profit acts as an economic incentive to improve performance.
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Economies are the engines of communities and they run most efficiently when their numerous parts are free of destructive interference. Only when the capitalist mechanisms of an economy are allowed to function properly and play their proper role can an economy provide for the various interests of the People it serves. In countries like Brazil and Venezuela, government interference has inhibited the growth and development of their economies to point even government can no longer provide for the basic needs of their Peoples while criminal gangs and oligarchs are free to divert so much wealth into their pockets that broad-base economic development is nearly impossible. In developed countries like the United States, lackluster GDP growth and slow productivity growth are also products of destructive government and private-sector interference.
When consumers are able to buy products and services, businesses are able to stay open and pay their employees. This is only possible, because wealth is able to circulate throughout the economy at a continuous and sufficient rate to maintain consumer spending. Economic growth is one means of ensuring wealth circulates throughout the economy, yet economic growth does not necessarily guarantee enough wealth will circulate to all corners of the economy. As the economy is two-thirds consumer spending, payroll is the principle way in which wealth is distributed and circulated. Consequently, widespread employment, high worker productivity, and healthy wages create a strong, healthy national economy. As such, there is a need to empower workers and free the labor markets of destructive interference. Economic growth is seen as the primary means of fostering business development, new job creation, and income growth. Because increases in productivity, or worker output per hour, impact economic growth, the likes of Federal Reserve Vice Chairman Stanley Fischer have emphasized the need to increase productivity in order to address weak economic growth and an expanding income gap. From 1949 to 2005, US productivity grew on average 2.5% yearly; whereas, from 2006 to 2015, US productivity grew on average 1.25% yearly. Given that productivity has increased 73% from 1973 to 2015, yet worker compensation has only increased 11%, payroll practices have clearly played a role in discouraging productivity growth.
People are motivated by their economic, social, and emotional interests. A pleasant work environment and a sense of pride in one’s work can do a great deal to motivate an employee. After all, people may work for a paycheck, but they work hard because they care. That said, income determines how well people live. With costs continually growing and new expenses arising, people need to see an increase in their incomes in order to maintain a healthy standard of living. They also need motivational raises on a regular basis to feel a sense of accomplishment and appreciation. Faced with budget constraints, business owners and managers need to set pay and reward raises with productivity in mind. |
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April 2020
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