The UK has a duty to reform its Caribbean Overseas Territories

Published by Anonymous (not verified) on Wed, 13/09/2017 - 4:10pm in

Rupert Jones, the former attorney general of Anguilla, wrote an article for the Guardian yesterday in which he suggested that the UK’s lethargic response to the Hurricane Irma induced crisis that has hit that island and others in the Caribbean is due to the UK’s uncertain attitude towards its Overseas Territories due to their tax haven status.

He graciously referred to my comments on this issue on this blog, as did the Guardian when quoting me at length in a related artcile on their web site. I have to say, he and I seem to be of not dissimilar mind. His central argument is that the UK is deeply embarrassed by tax haven activity and the refusal of these places to comply with requests for improved transparency but as he notes:

The UK may hold the local governments of these territories responsible for these failures. What it does not say is that the UK could legislate to require reform tomorrow if there was the political will. There is not, perhaps because of the fear that it would highlight the UK’s ultimate responsibility.

This ability on the part of the UK to impose its will on these places is something I have long argued exists, but is strenuously denied in Whitehall. It is good to see it confirmed by someone with very good reason to know the facts.

I also welcome this statement, with which I concur:

Both UK and local politicians also recognise that the islands’ economies, heavily reliant on offshore financial services, might flounder with the major loss of jobs. Then the UK may have to provide alternative investment.

I have long argued this is our duty.

In essence what we agree upon is what Rupert Jones says at the end of how own artcile:

I hope he [Boris Johnson] will maximise the UK’s response to the devastation wreaked by Irma, as well as using it as an opportunity to discuss our relationship with the overseas territories. It’s a conversation long overdue.

I can hope.

But I do not expect it will happen.

The BBC pay data provides evidence on the importance of transparency

Published by Anonymous (not verified) on Thu, 20/07/2017 - 5:53pm in

The BBC pay data could just have provided some evidence for tittle-tattle. I am sure many in the BBC might wish it had done just that. That’s because it did so much more. It provided what seems to be pretty damning evidence that there is something wrong at the BBC, which appears to be living in a time warp when it comes to gender equality.

I make the point for several reasons. First I want the issue addressed.

Second, I want the information from all companies and organisations. I am quite sure the BBC is not alone in discriminating as it does so I see no reason why it alone should be required to disclose.

Third, this data proves the power of transparency to promote reform. The clamour for change that exists today would not have happened without information to fuel it.

The tax justice movement knows information has changed the way we work.

We also know that having consistent reliable data on who uses tax havens; who owns companies and on the activities of multinational corporations via country-by-country reporting would radically transform what we know about tax and its abuse. And just as the BBC will have to change so would tax behaviour change if we knew more about it.

No one wants to be known as a cheat. Tax transparency would reveal those who do cheat. That may not stop it all, but it would go a long way to solving the problem. Which is why we will keep in working for tax transparency, taking on the rearguard action being fought by tax haven operators in defence of their defenceless activities.

There were more Scottish Limited Partnerships set up last year than in a preceding century

Published by Anonymous (not verified) on Sun, 25/06/2017 - 5:41am in

I share this press release from Transparency International, which I think is really important, whilst adding that this is not within the control of the Scottish government:

24th June 2017, London – The UK’s failure to reveal the true owners of Scottish Limited Partnerships (SLPs), has so far left the UK open to corrupt money launderers. By seeking to reveal who the real owners of SLPs are, the UK is making a positive step towards ending its role as a safe haven for corrupt money, as well as meeting a key EU deadline.

The Government had been expected to miss the June 26th deadline, but has instead bypassed parliamentary rules that requires a 21 day period of parliamentary consideration, to push through the necessary legislation.

Scottish Limited Partnerships have unique features which mean they can be used as shell companies to help launder money and provide what appears to be a ‘respectable’ UK front to illicit activity. They have been at the centre of numerous global corruption scandals including over 100 used in the Global Laundromat, in which up to $80bn may have been laundered out of Russia.

Research from Transparency International and Bellingcat has found that in 2016, as other options for money launderers have narrowed, 5,215 SLP’s were registered, despite 1,000 fewer being set up in the entire preceding 100 years. In fact 71% of those registered last year were controlled by companies based in secrecy jurisdictions, such as Belize and Seychelles – a corporate structure favoured by money launderers.

Duncan Hames, Director Transparency International UK, said:

“We have seen how Scottish Limited Partnerships are being used as the UK’s home-grown corporate secrecy vehicle. They allow corrupt individuals to hide their real identity when laundering vast sums of money out of the country they have stolen from, by assuming the respectability of a UK incorporated legal entity. The abuse of these partnerships is a global problem that can have devastating effects on populations who have had their natural resources or state budgets emptied.””

“Whilst other avenues for corrupt individuals to launder the proceeds of corruption have been tightened, Scottish Limited Partnerships have emerged as a key weakness in the UK’s defences against money laundering. Criminals are adapting their behaviour to keep their activity hidden, so it is vital that the UK Government is alert to their methods and disrupt them .”

“We have campaigned on this as part of our broader efforts to end the UK’s role as a safe haven for corrupt individuals from around the world. Earlier this year we submitted evidence to a Government consultation on Scottish Limited Partnerships, and we are glad that the Government has now begun to make the necessary changes.”

Key Stats:

  • 23, 625 (430%) increase in number of SLP’s set up in past 10 years
  • In 2016 more SLPs were registered (5,215) than in the century after they were introduced in 1907 (4,458).
  • 74% of SLP’s set up in past 10 years registered to just 10 Scottish addresses
  • 71% of SLPs registered during 2016 were controlled by corporate partners based in secrecy jurisdictions like the Seychelles, Belize and Dominica.
  • Dozens of SLPs were identified as key parts of the Global Laundromat, that helped launder up to $80 billion out of Russia between 2010 and 2014
  • 20 SLPs were used to help steal over $1 billion from Moldovan banks in 2014, which cost the country an eight of its annual GDP

Key Recommendations:

  • Extend beneficial ownership transparency requirements to SLPs to show who’s really controlling them
  • Companies House should then verify all beneficial ownership information it receives from SLPs so there is confidence in the accuracy of the information provided
  • Prohibit SLPs from having corporate partners in most circumstances to stop them being used as fronts for money laundering

I would go a little further and would suggest investigation of those servicing these entities for money laundering offences unless they con demonstrate that they know their owners and the purpose for which they are used. And after that? I think the question has to be asked why these entities are still available when they are so open to abuse.Plugging a loophole is not enough. It is time to say enough and ban them. 

The UCOP Audit and University Governance

Published by Anonymous (not verified) on Mon, 08/05/2017 - 3:47am in



As expected, the State Auditor's report on UCOP has triggered a huge political uproar. The charges of secret reserves, out of control personnel policies, special benefits for executives, and UCOP interference into the audit process have been explosive to say the least.  There have been two legislative committee meetings that addressed it, numerous statements from politicians about its implications for UC, and editorials and op-eds expressing justifiable outrage about UCOP secrecy and management practices. Predictably enough, some legislators have called into question UC's constitutional autonomy.  Despite, or perhaps because of, efforts by UCOP and the Regents to explain away some of the problems, the damage to the University's reputation has been considerable.  This report is going to haunt the University for a good while.

Amidst all of the heated disagreement, however, there has been one fundamental, and fundamentally wrong, point at which all of the arguing parties appear to agree:  that the answer to the problems the audit revealed can and should be solved from the top down.  Wherever you turn in the discussion (whether in the auditor's suggestion that the legislature pass a separate budget for UCOP and establish an outside overseer, or President's Napolitano's assurance that she had established an internal UCOP working group to improve things, or Regent Lozano's insistence that the Regents were hard at work in ensuring their "governance" of the institution as well as hiring an outside consultant to help with UCOP reforms), the common element in all of the proposals is that the answer is to be found in a closed loop of decision makers shuttling between Oakland and Sacramento (with the occasional nod to the campus chancellors).

In fact, the most striking aspect of the auditor's report and UCOP's response was the almost total absence of any acknowledgement of faculty or staff knowledge or perspectives.  Where were the formal responses of Senate Committees in the report?  How exactly is the auditor to know if the programs that UCOP oversees are productive if they don't get unfiltered responses from the people who are providing the education and front-line services to students, are engaging in research, and are attempting to convey that research to the public?

Moving forward, the Regents have decided to hire an outside consultant to review UCOP's plans for reforms.  This suggests that the University has no business or public policy schools with faculty who are experts in these issues.  If only the Senate had a knowledgeable committee on Budget and Planning or perhaps one on Research that could provide meaningful and ongoing oversight of practices that are supposed to enable the university's core functions. But apparently not.  Instead we are to witness UCOP organize an internal reorganization with some review by a paid outside contractor answerable to the Regents who have never demanded from UCOP either the clarity of presentation or the documentation that everyone now seems to agree is essential going forward.

To be fair, this problem is not limited to either UCOP or the Regents.  Although arguably an effect of the Yudof administration and the wrong turn taken by the University Commission on the Future, the proliferation of task forces, the sidelining of formal Senate oversight, the general decay of shared governance, and the centralization of management and authority is deeply embedded on campuses as well.  Task forces not only serve to tilt authority in the direction of management but also eliminate the production of institutional memory and documentation that are, or at least should be, one offshoot of standing Senate committees.  Of course, that institutional faculty memory will only matter if faculty themselves are willing to take the time and effort to press for their viewpoints to be heard and to have influence.  As one Anonymous argued in a comment on Chris' last post, it is up to faculty to begin to take the time to work with staff to clarify and understand university budgeting from the departments on up.  This knowledge will not solve all of our problems.  But given what we know from the audit and its responses, reform cannot depend on top-down initiatives.

I recognize that all of these things may seem to be lost causes; too many of us have accepted the new rules of the game. While we complain, we do not see any possibility of change.  To make matters more difficult, secrecy tends to protect specific rather than general interests.  But more is at stake than simply a desire for faculty voice.  The contemporary managed university does not have the internal democracy nor the free flow of information and institutional knowledge it needs to meet its purposes.

In his comment on Chris' last post, Bob Samuels noted that some of the changes to the audit responses made the online education program look better.  But UC's online venture is a  classic example of managerially imposed and rushed changes made in the nature of a supposed market driven necessity.  I'm sure we have all heard managers complain about how faculty do not want to change fast enough; perhaps they might consider that a rush to bad judgment marginalizes the deeper thinking that makes failure less likely.  If the University really wants to think about how to educate and create knowledge more effectively for the twenty-first century,  they would do well to recognize that in universities knowledge flows upward.

The recent experience at UC Riverside is only one example of the crises that can result from a managerial failure to learn from faculty and front line staff.   There the administration sidelined faculty input in the early stages of its planned expansion, rushed to hire despite faculty concerns, didn't think about the necessary lab and classroom space its new hires needed and marginalized departments.  In the end, the Riverside Senate had to step in and salvage the situation.  If there had been genuine consultation the situation would have been avoided in the first place rather than being redone later.  This situation was not the result of evil or self-serving administrators but rather of the collapse of the practices of shared governance and the recognition that institutions require a structured way to absorb the multiple perspectives that exceed the managerial groups.  But that is not an idea one would find in the closed managerial circuit between the State Auditor, UCOP, the Regents, the California Legislature, or, most likely, local campus administrators.

Of course, these problems are not limited to UC.  As indicated by the ongoing revolt of the faculty (including a resolution of the university's faculty senate) over Purdue University's secretly negotiated agreement with Kaplan's online education business, the willingness of university administrators to seek deals without proper consultation and without due public debate is widespread.  Nor is this limited to public universities (indeed private universities are probably worse). Yale and Columbia (neither of which have robust traditions of faculty governance) have sought to mobilize a seemingly endless array of technicalities to keep their graduate student workers from collective bargaining. Vanderbilt University has recently sought to prevent the unionization of their NTT faculty by claiming that they are managerial (a position rejected by the NLRB) and suggesting that their unionization would break down traditions of shared governance (although few NTT are included in that).

These may at first glance appear to be distant from the controversies about UCOP.  But they all point to the same issue: the refusal of top managers to recognize that the cost of achieving their expanded flexibility is the increasing inability of universities to take advantage of the practical knowledge held by faculty and staff.  There is, of course, a perspective of system and of the whole that must be part of any decision-making process.  But it is only one such perspective.  And if that perspective is, as has happened, increasingly sundered from the perspectives of the faculty and staff, then we will see more and more examples of universities cut off from their purposes and surrendering to demands to serve other interests than their own.

The Tax Justice Network Beneficial Ownership checklist

Published by Anonymous (not verified) on Mon, 17/04/2017 - 9:29pm in

I’m sharing this blog from the Tax Justice Network because I had some input into the project to which it refers and am doing some thinking with TJN on the full standard to which it refers:

We’re pleased to say that the world is moving towards the registration of beneficial owners (BOs) who are the natural persons who ultimately own, control or benefit from legal persons (e.g. companies) and legal arrangements (e.g. trusts). If made public, these registries would increase financial transparency. Public registers of BOs are the only way to prevent criminals from hiding behind opaque structures and nominees from facilitating tax evasion, money laundering, fraud, and other forms of corruption, including the financing of terrorism. They are also a prerequisite for the smooth functioning of markets by providing basic information for market participants and regulators so they know who is doing business where, as well as for the wider understanding of patterns of national and international economic activity. tjnMain3616x3616In 2016 the UK made available a free online registry of the BOs of companies  in open data format. Ukraine was the first in the world to create a public registry of beneficial ownership. Afghanistan, France, Ghana, Kenya, Nigeria, the Netherlands and South Africa have committed to introducing one. Other countries are following suit.

The Tax Justice Network has now published this ‘BO checklist‘, as a preliminary attempt to provide policymakers currently working on establishing BO registries in many countries with all the relevant issues that should be considered and addressed. Our checklist does not in any way replace the development of a full standard yet to be completed and adopted. Part 2 of this series will include relevant accounting and financial information that we believe every corporate or commercial registry should provide.

We welcome your feedback, additions and suggestions for improvement by contacting us at

Our paper, which also describes principles towards effective BO registration and explains loopholes to avoid, may be downloaded here. A blank checklist (explained in our paper) may be downloaded in Word or Excel.

The UK is responsible for regulation of financial services in its Overseas Territories

Published by Anonymous (not verified) on Wed, 12/04/2017 - 3:51pm in

On 3 April Baroness Williams of Trafford, who is a Home Office minister, claimed in the House of Lords that:

The UK is directly responsible for [its] O[verseas] T[erritories]’ and the C[rwon] D[ependencies]’ compliance with international obligations, including the European Convention on Human Rights. It is our responsibility in international ​law, as the overseas territories have no legal personality under international law. That was a key factor in the UK taking the rare step to legislate for the OTs on the issue of, for example, the decriminalisation of homosexuality. While I acknowledge the moral dimension of tackling criminal finances, the same responsibility does not exist for financial services policy, which is OT government responsibility.

The discussion arose during debate on an amendment to the Criminal Finances Bill which would impose on each of the British Overseas Territories (but not Gibraltar or the Crown Dependencies) the obligation to have a public register of the beneficial ownership of the companies that they register as a mechanism for tackling tax abuse. This amendment is being fiercely resisted by the UK government although it was only in 2014 that David Cameron said:


How political times apparently change.

There is a way in which they do not change though, and that is with regard to facts. And the fact is that I think that what the Baroness said is wrong. Let me offer a number of reasons. I will use the British Virgin Islands as a case study: I think that in slightly differing ways the case is replicable in the case of the other territories.

The BVI constitution is available here. First, note that if there is any doubt as to the right of Westminster to legislate for it, this constitution is a statutory instrument of the Westminster parliament. I suggest their Lordships should take note.

Second, the question being asked is whether or not the responsibility for financial services policy is the responsibility of Westminster or the OT government. There is only one logical answer that I can see. Let me run through it. The preamble to the Constitution says:

What I say then has to be within the spirit of the fact that the UK is the administering power whose job it it so to ensure that self government happens, as far as is possible, and that this self government supports social justice, economic empowerment and political advancement, all subject to the conditions actually noted. The first of those conditions to note is clause 46, which says:

In other words, Westminster rules in the name of the Queen and any power conferred on others is with the consent of Westminster, whose presence has tangible form in the person of the Governor, of whom the Constitution says:

The Governor can then act as they see fit, and on instruction from Her Majesty, for which read Westminster. And just in case there is doubt as to the scope of that power to act, refer to the very last section of the Constitution, which says:

In other words, the Governor, if instructed by Her Majesty (or, in practice, one of her minsters) could, without a shadow of doubt make a law for the type of public registry of companies that David Cameron thought so important if they thought it appropriate to do so, and if they did the Constitution makes it absolutely clear that there is nothing the BVI could do to stop them.

I could rest my case there, but I know the counter-argument will come from clause 60, which says (I added the highlight):

The position is clear: matters relating to taxation, the regulation of finance and financial services are all reserved powers for exercise by the Governor but can be delegated subject to conditions. These conditions are:

Note that the permission of Secretary’s of State are required i.e. London has an unambiguous role. And note that the Governor can direct action under clause 8 if they so wish. That same section also makes clear that delegation once done is not permanent; it remains conditional.  In that case the fact that Westminster can act is now beyond doubt.

So, we come to the nub of the question, which is can the UK use this power to act to impose the requirement for a public registry of companies on the BVI? The answer is unambiguously yes under clause 119 of the Constitution: this reserves all powers to Westminster. Assuming good relations are to be retained with the local elected officials and that resort to section 119 is not desired is it also possible? I would argue that is also the case.

Facts alone support this. No one can pretend that BVI needs 417,000 companies, 1,614 mutual investment funds, 176 insurers or 211 banking and fiduciary operations to service a local population of 28,000 people. These entities exist, almost exclusively, for the benefit of people ‘elsewhere’ i.e. anywhere but the BVO. The BVI know this. The BVI Financial Services Commission says (I added the highlight):

Note also the last paragraph and the reference to cross border issues. I am presuming no one in BVI really thinks, by the way, that the legitimate business transactions it arranges require absolute secrecy, because that is clearly contrary to the UK government view, as David Cameron’s comments prove.

In that case can it be argued that the BVI company registry is purely a domestic issue as Baroness Williams implies by her comment, noted at the start of this post? I suggest that hers is an impossible interpretation. The facts prove it is not a domestic issue: this registry almost wholly exists to service companies that do not trade in the BVI. I would venture that maybe 98% of all current BVI companies have nothing to do with the place in reality, and I may be generous in saying so. In other words, the company registry the BVI operates must be within the Governor’s reserved powers on external financial services regulation in section 60 of the Constitution and the Governor may, because this then is very clearly an issue to do with foreign relations, direct how that registry should be run if he thinks the local decision is prejudicial to Her Majesty’s best interests. I would take David Cameron’s comment as being the clearest indication of what those interests are. In other words, I have not a shadow of a doubt that the Governor, on the instruction of a Secretary of State, especially if they are mandated by an Act of Parliament, may impose such a measure.

Let me add two final thoughts though. First there is the issue of interpreting Her Majesty’s interests. I refer as support evidence to a report of the National Audit Office from 2007 on the Overseas Territories, and managing the risks they create for the UK. In there they say:

Over the years the UK’s exposure to risk has been varied, including; contributing to the costs of natural disasters and of meeting various international obligations; funding liabilities and deficits in Territories’ public finances; and the need to bolster regulation in vital areas like transport safety and security. Other areas, such as the regulation of offshore financial services, clearly pose important and growing risks, though these have not yet resulted in direct costs to the UK.

In another part they say:

This section of the report examines the key risk areas which could impact on the UK, as identified by a National Audit Office survey of Territory Governors and governments, and the ways in which the UK and the Territories are attempting to address these risks, with varying degrees of success. The risk areas are: economic and fiscal trends; natural and man-made disasters; crime and justice; offshore financial services and transport safety and security.

To be blunt: the NAO thought that the risk from poor offshore financial services regulation that fails to meet acceptable standards falls to the UK. The UK has made clear it thinks public registries are the only acceptable standard in this area now; it follows it must protect the UK’s interests by requiring them of the Overseas Territories. If not the interests of the Uk are prejudiced, as the NAO makes clear. This is not a domestic issue for the OTs in that case.

But, and finally, if the government wants to respect BVI local opinion I see reason to do so. I would accept a compromise. The BVI company registry could be split. The register of companies really beneficially controlled locally could be subject to non-disclosure of that beneficial ownership as that is what the people of BVI apparently want. However, those companies with beneficial ownership elsewhere would have to have details of that beneficial ownership disclosed. Constitutional niceties can be respected then and appropriate regulation still be put in place. It’s an imperfect compromise, but one I could live with (subject to third party monitoring that the BVI and other OTs were making appropriate enquiries as to claims of local beneficial ownership).

I stress, this argument has been structured around the BVI for convenience. I believe that the situation is consistent across the OTs: the BVI constitution is modern, dating from 2007, and so broadly reflects current thinking. I sincerely hope Baroness Williams might change her mind. I think it in Her Majesty’s best interests (as defined for this purpose) that she does so.

The Great Mistake on Research Costs

Published by Anonymous (not verified) on Mon, 27/03/2017 - 9:22pm in

I'm going to use a lull in my travel for The Great Mistake to start clearing my post backlog, starting with a response to the most recent review, by the sociologist Andrew Perrin.  His piece is at the public sociology blog Scatterplot, and, among its other virtues, it offers the most sustained engagement on research costs (Stage 2 of the book's decline cycle) that I've received.  I posted a comment on his post and crosspost it here.  His skeptical analysis of the emphasis I place on research costs is essential reading. It advances the kind of debate whose general absence has helped dumb down university policy.  I'm very grateful to him for the intelligence and energy that went into his analysis.

This blog has covered research costs many times ("How Can Public Universities Pay for Research?" "UCLA Loses LONI: Why Budget Silence is Bad for Science," "UCSD and the Crisis in Public University Research Funding," etc.) In The Great Mistake I go into the problem in detail, and also, in the final chapter, suggest a way of solving the core research cost problem without needing new money.  

After one talk this winter, someone asked me, "are you arguing that the way we fund research is the public research university's Achilles' heel"?  "I wish," I replied.  "That was just one small though important body part that didn't get protected in the River Styx, so you could armor it and be ok.  Our research funding model is more like a tragic flaw.  It is a secret weakness that cannot be separated from a great strength--unless it stops being a secret and is brought to light."  As I was later watching Toneelgroep Amsterdam's great 6 hour sequence of three Shakespeare plays, Roman Tragedies, I wondered, is the public university like Coriolanus, returned a military hero but unwilling to work with the newly empowered plebeians in the Senate, and so destroyed? Or like Marcus Junius Brutus the Younger, picking the wrong political allies, with the same result? Or Mark Anthony, losing the civil war to Octavian by ignoring his own strategists, who assured him he could not win at sea but must fight on land? Overkill, perhaps.  Start by reading Andrew Perrin.


My response:

Many thanks for the thought and intelligence that went into this review.  I agree with the criticism of UC-centrism.  I’d like to assemble a research group to do comparative state studies of university policies, or at least work with other people on this.  We’re getting a better picture through a series of books that focus on the systems the authors know from the inside.  Austerity Blues looks at New York, to take just one other example. Jeff Williams and I would love to publish more work on various state systems in our Critical University Studies series. As you say, North Carolina is a crucial case.
On research funding, let me first take a step back.  The book argues that treating universities as private goods has lowered their social value and hurt their finances. Many defenders of any given instance of privatization either deny social or educational costs or say they are less than the life-saving benefits of the new revenue streams. My examples question these life-saving revenue benefits, which in many cases are actually negative.  Universities always generate value even when they lose money on something like extramural research or small-scale teaching.  But policymakers shouldn’t support a practice—privatization—that doesn’t correctly do the one thing it is supposed to be good at, which is provide net financial benefits (gains that aren’t created by losses elsewhere in the institution).
Research costs come where they do in the book’s decline cycle because they are a core example of the university’s primary reaction to abandoning the public-good model of the university (Stage 1), which is to stopsaying public benefits justify monetary losses on research, and to startsaying the university generates monetary benefits on research (the Bayh-Dole Act in 1980 was one turning point).  The latter statement has the double liability of obscuring research as a public good and of being wrong. Research is a public good and a private (institutional) loss, as it can be in the public good model, and as we disallow in the (inappropriate) private good model.  (A lot of bad things are tied in to this error, like splitting STEM and SASH research on phoney market grounds, hinging some portion of federal funding on science’s (exaggerated) direct economic value, etc.)
Other broad points. Technically, the contrast I draw is between high-research and high-teaching fields, where fields with lots of extramural funding have high gross revenues but lose money when overhead costs are netted out, and fields with essentially no extramural research but lots of enrollments are able to run surpluses—surpluses that administrators must use to cover losses elsewhere.  The fact that these kinds of departments polarize into STEM and non-STEM is contingent on other historical problems that I’m trying to help address.
Also, I am pro-STEM and hate the STEM/SASH divide.  I spent not the happiest years of my professional life as a co-founder of an NSF center trying to overcome it.  I see the divide as an artifact of a two-cultures ideology that has produced fundamentally different—even mutually incomprehensible-- material conditions of research.  The grant scramble in STEM feels to me to be inhumane and even anti-intellectual. I think it’s getting worse all the time, and I have nothing but sympathy and admiration for the colleagues who work 80 hours every week while skipping weekends for months at a time to keep their labs running and students funded.  I take their plight as seriously as I take that of SASH scholars. And yet I also see political inequality between STEM and SASH that is supported by budgetary opacity.  Designated makers always beat takers in America, and my hope is that showing the makers are also takers (we all are both) will create a more open and less biased policy arena and fairer, more effective outcomes.  A side benefit, which I don’t do much with in the book, would be redress for the structural poverty of qualitative and interpretative research, for which I don’t see any ethical or intellectual justification.
Since I advocate a wholesale public good model for universities, I am pro-subsidy.  I am also pro cross-subsidy.  I don’t mind some Sociology enrollment income winding up in Electrical Engineering to pay for accounting staff.  In terms of what you call external funds, my view, which goes beyond that of Walter McMahon and other economists I cite, is that the general public should pay all the costs of public universities, in the full knowledge that some returns will go only to the student they subsidized in the form of private market benefits (a salary increment), while most returns are nonmarket, indirect, and social, and fan out incalculably into the society, as we want them to.  In “internal” terms, we all need to help each other out.  If running one chemistry hood costs as much as running the lights and computers in 35 sociology offices, then sociology coughs up for chemistry.  The reverse should also be true.
The paragraph you call grudging (pp 94-95) reads as follows:
The problem with this situation is not that these subsidies, which are called cross-subsidies, are inherently wrong. To the contrary, these subsidies are commonplace and justified by the public benefits of research results. They are also justified by the private benefit to the student of attending research-intensive universities. At these institutions, students work with faculty who are at the forefront of their part of the knowledge world. They have access to the research process, which helps them to develop creative capabilities sooner rather than later. One can argue that the public and the student receive more benefit from an education in which instructional funding subsidizes research in the same environment. Though the costs can and should be separated so we can see who is paying for what and how much, the cross-subsidy is completely legitimate in principle—as long as it is acknowledged and shared in an equitable way.
The last sentence is the issue for me: not that we havecross-subsidies, but that we hide them. This removes them from the realm of policy and shared governance, and even correct accounting.
 Here are my more specific responses:
You write,
After a few silly anecdotes about scientists prevented from buying printer paper on their grants (do English professors not need printer paper?), Newfield then relies on NSFand university budget data to claim that between 9% and 20% of universities’ outlays for research are uncompensated by federal funders, so must be made up by institutional funds. These funds, he claims, often amount to nearly 100% of institutional research expenditures, which leaves 0% for institutional support of SASH and other research that doesn’t attract extramural funding.I agree the anecdotes are silly. The point is that research accounting rules set up Catch-22s: some are silly, and others which blow holes in universities budgets. I also break down the range of 9-20% into three models all of which are justified by different sections of research funding reports based on the same data.  The differences reflect not only the ambiguity of semi-official interpretations of federal data, but also unequal budgetary situations for different kinds of universities. We need much more—and much more open—research to have a more complete picture of what is going on.
There’s a lot of forensic accounting going on here, and I think Newfield makes untenable assumptions to reach those high numbers (20% unfunded, 100% of institutional outlays). Most important here is the accounting for what universities pay for research that is not extramurally funded. Lots of that is implicit; professors spend their time, paid by university funds, on research and scholarly inquiry all the time. They do it with computers, office supplies, and sometimes dedicated funds that don’t count as research expenditures but are university resources spent on research and scholarly activity.
I’m not sure what you mean by untenable assumptions, but I assume you mean the omission of a portion of tenure-track faculty salaries and benefits as university’s internal funding of research.  I mention this omission in a footnote (middle of p 363, and also see the following note), and my reason is that this applies to all research professors in all disciplines, and is part of what one must do for one’s basic salary. Put differently, it would increase both the total amount of institutional funds spent on research and the total amount of research expenditure, so it wouldn’t change the share.  If anything, counting part of salary and benefits would have helped my inequality case, since disciplines that expect extramural grants for tenure, promotion, etc. generally require about half as much teaching as those that don’t.  In any case, I could better acknowledge that research universities do invest in all faculty in this way, especially since I am personally very grateful for that.
Next you write, “Throughout the section on extramural funding, Newfield implies that universities would not be doing the research if it weren’t for that funding.”  I’m agnostic on this. Your counterfactuals are interesting, but I don’t think they affect my argument.  It’s true that universities paying 20% of research is better than them paying 100%.  But paying 0% is better than paying 20% when general operating money per student has never recovered to the levels that the research enterprise assumed, and when students are progressively taking over from taxpayers in supporting it.  20% or 50% fro institutional funds would be fine with me were research funded at adequately high levels and as a public good, such that subsidies (including those from students as private individuals) are no longer extracted, left acknowledged, and not reimbursed.
Then, “That emphasis is puzzling because, unlike the rest of the book, it’s really not necessary to the overall argument. Each other piece of evidence goes directly to the devolutionary cycle (p. 36), but it’s not at all clear to me why the external-funding claims support that argument at all.’’
I tried to address this point above.
his greater claim that in fact the English department is subsidizing STEM is based on treating institutional funds in two conflicting ways. When they pay for English salaries and overhead, they are treated as external income from tuition and state funds: fees paid for English professors’ work. But when they pay for STEM salaries and overhead, they are treated as internal funds. Newfield is right to call out the PR machine’s implication that STEM pays for itself and English doesn’t, but he’s wrong to interpret this as an internal subsidy.
The terms external and internal may be confusing.  External funds become internal funds, or what the federal accounts call institution (or institutional) funds.  Student tuition and state general funds, plus some other smaller streams, become the university’s unrestricted funds that they distribute as they deem best.  It’s an “internal” subsidy in the sense that the university is itself paying a share of research costs on top of what it gets from the specific extramural research sponsor (DARPA, The Legacy Foundation, etc.)  But the university isn’t creating this money itself, and “profits” from other enterprises (like medical clinics) don’t flow toward core campus operations like instruction and research.  So I stick with calling this an internal (or institutional) subsidy. But again, I don’t think subsidies are bad. I just think hidden subsidies are bad.  (One practical reason that helps propel the decline cycle is that they have convinced legislators that research makes money rather than loses it, so they don’t understand why the state should pay more money for university operations.)
That account masks a much bigger problem with reliance on external funding: its intellectual costs. Funding rates are already very low, and today’s “skinny budget” contains draconian cuts to those low budgets. All that means that scientists will be spending more of their time trying in vain to attain funding instead of doing science. (Grant applications are the beginnings of science, yes — but only when high-quality applications are likely to be funded.) Furthermore, the bottleneck by which such an enormous majority of science is funded by just a few agencies raises the prospect of an intellectual monoculture; heterodox inquiry is unlikely to flourish under such concentration. I think it would be better for science and for SASH disciplines for universities to find ways to fund more research across the disciplines internally. I hope my account doesn’t mask this problem, even if it doesn’t analyze it.  I also hope my account helps the discussion you call for by shining a light on how we spend institutional funds now, precisely so we can imagine spending them differently. 
In general, I agree with you that the agency funding situation poses major intellectual problems.  These are important and longstanding.   Clark Kerr described federal granting agencies as having created a “putting-out system” that made universities dependent subcontractors with borderline sweatshop conditions, and that was during the golden age of federal granting growth in the late 1950s and early 1960s. More internal funding would help with this quite a bit.  Projects could be developed in collaboration between faculty and their offices of research, and consortia could be created bottom-up to share costs across universities.  It would be helpful to draw up some questions and projects that can’t get funded in the current system but that could under this alternative.
The drawback of course is that universities would need to quadruple their research funds to cover what we currently fund today, which still wouldn’t be enough, either for STEM or for SASH disciplines.  I’d like to see a cultural shift that would allow the public to trust universities and their associated professionals enough to do that, but that’s a long road.
In any case, many thanks again for your very helpful and insightful analysis.

‘Promised’ Charity Money to Be Investigated

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