What Austerity Means for Us

August is here, bringing the run-up to a new school year in many Northern Hemisphere places.  In the West, particularly Europe and the United States, much angst is being felt about economic matters with many pundits suggesting that we are on the front-end of a second dip into recession (following the first back in 2008). What is becoming clear is that the "recovery" of 2010 was anemic at best, and that underlying economic conditions--exemplified by everything from employment to debt data--remain weak and volatile.

For the moment, much of the West seems caught up in a paroxysm of public sector austerity, following on several decades of profligacy. Those managing the Eurozone, primarily the Germans and the French, are insisting on serious austerity in exchange for bailing out Greece, and will likely do the same when it comes to Italy and Spain. In the US case, parties as disparate as Standard & Poor's credit rating service and the Chinese government are insisting on dramatic reductions in deficit spending (what the Chinese are calling an "addiction to debt"). Oddly, at least at the most superficial level, that austerity is in order seems to be one thing the Chinese and the Tea Party agree on.

What lies ahead is, of course, something we will discover in due time. Whether austerity will work, despite its failure in other times and places, is an empirical question. Whether austerity will even last or will give way to another paroxysm remains to be seen. But, in the meantime, several things seem clear and worthy of discussion by independent and international school governors and administrators:

1. Economic volatility on at least a regional basis is the most likely scenario for at least three to five years;
2. Belts are already pretty tight at most schools--the 2008 recession created a leanness that leaves little more fat to cut;
3. Most schools, especially day schools, are and will be tuition-dependent in the near and intermediate terms--endowments are great if you have one, and getting one is a good long-term strategy, but growing one is not an effective solution to short-term cash needs;
4. Increasing teacher productivity remains the main lever for reducing costs, given that salaries and benefits account for the lion's share of budgets nearly everywhere;
5. For now, debt is bad and austerity good, at least in the public imagination--look for slow or no growth and perhaps even retrenchment in some economies.

  What does the above portend for your organization?