I just finished reading Capital in the twenty-first century by Thomas Picketty. The title came up in a discussion about academic publishing. I was curious about what an academic best seller is like.
Goldhammer's translation is very readable. It flows naturally and the only time I could hear a French voice was when the author made reference to distinctly French history. The graphs, charts, and notes did not detract from the narrative and made a strong case that we are coming out of a unique time.
One of Picketty's data sources is the endowments of U.S. Universities. He uses them to illustrate the economies of scale for investors - rich endowments have a higher return on investment (ROI) than more modest endowments. (For me, it is conceptually difficult to think a $100 million endowment as modest.) The important applicable fact was most endowments only make about 5%. This is the estimate Picketty also makes for the total ROI for most capital.
So, I started thinking, if a University is funding Library materials with an endowment how much of the endowment is needed? The basic answer is 20 times the price. Which works well with fixed expenses. For example if you want to spend $1000 on books each year, you need a $20000 endowment. Or $21000 - $1000 to spend and $20000 to generate $1000 for next year. If I'm dealing with an ongoing commitment, like subscriptions, using this rubric is going to get you in trouble.
A simple approximation, is to subtract the inflation rate (N) from the ROI. So, if a librarian locks in the low rate of 3% inflation - most publishers offer 3-5%, the library needs to have an endowment of $50000 for each $1000 of new spending. And if a publisher wants 5%, the library can't take the journal in good conscience - the fiduciary responsibility is to preserve the endowment to continue to support the university, not hand it over to the publisher. This creates a problem. Investor's in publishers want a ROI of 5%. If the publisher can create the 5% from increased productivity, every one will be happy. If not the system will collapse as universities cut spending and publisher's raise prices in response to drops in revenue. This is a good definition of unsustainable.
Essentially, without increased productivity, we're pitting university donors against publisher shareholders. Each group may contain the same people. One model, we could adopt for dealing with the problems is the regulated monopoly model used for some public utilities. Publishers could be guaranteed steady, but modest profits. Prices would be transparent and would not increase unless approved by a public oversight board. It would remove a lot of the budget stress at universities and could actually increase the number of subscriptions sold by academic publishers.
