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The economics of scholarly communication
Librory Acquisitions: Practice & Theory, Vol. 13, pp. 423-421. Printed in the USA. All rights reserved.
1989
0364~6408/89 $3.00 + .OO Copyright 0 1989 Pergamon Press plc
THE ECONOMICS OF SCHOLARLY COMMUNICATION RICHARD
R. ROWE
President, The Faxon Company 15 Southwest Park Westwood. MA 02090
My focus today is on the economics of scholarly communication. I will briefly look at the recent history of this topic, explore some of the current trends in the way scholarly communication is financed, and ask a few questions about the way we would like to fund scholarly communication in the future. But first, let me make a few comments about technology and its impact around the globe. It is increasingly clear that information technology will in the next few decades transform the communication of ideas among all people. To cite just one example, we are all familiar with the effect of CD-ROM upon the publishing business- the incredible ability to get 500,000 pages of text upon a little disc that’s 5-l/2 inches in diameter. I heard last week, however, that a research and development firm in California has abandoned its effort to produce a double-density CD-ROM disc-that is to put a million pages on a S-1/2 inch disc-and that they are going for what they called the “quad”- a quadruple-density disc, putting 2-l/2 million pages of text upon one disc. The company predicted that the disc would be available for the commercial market in about 18 months. Imagine 2-l/2 million pages of text on a single 5-l/2 inch disc, and then put that in a juke box that takes four or five discs! That illustrates the kind of impact technology will have on the ways we will share ideas with each other in the future. Not only can change be profound, but it can be extraordinariIy fast. Look at how, in less than ten years, the personal computer has transformed the way we do business and think about our business. More recently, look at the way the facsimile machine has changed the way we communicate with each other. Think for a moment about the potential impact of the fax machine upon the postal services and, therefore, upon the efficient and cost-effective delivery of scholarly publications. It is not unreasonable to expect that the fax machine will make it extraordinarily more difficult for us to keep the costs of delivery of printed information under reasonable control in the years ahead. If “E-mail” and facsimile transmission of documents remove from the Postal Service the “high end” of its market, lower-class postal services are likely to increase significantly in cost and decrease in effectiveness. That would change the economics of hardcopy distribution and make newer electronic transmission technologies more attractive. As tempting as it is to talk about technology, I will focus today upon what I see to be a Editor’s Note: Dr. Rowe’s presentation was given on May 17, 1989 as the Spring Lecture at Ohio State University.
423
424
R. R. ROWE
less visible, harder to isolate, and yet in many respects more fundamental set of issues-that is, the economics of scholarly communication. As we think about a society that is moving toward an information age, we in the United States start from a position of being disadvantaged. In a knowledge-based society, information becomes the critical variable that determines the difference between success and failure. We are at a disadvantage in the United States because, historically, we have always undervalued ideas and have been essentially an anti-intellectual society in comparison with most other developed societies. In the American culture, “thinking” is a feminine activity, not a masculine activity. The “real man” is symbolized by the Lone Ranger or, more recently, Rambo, who proves his worth in a gun battle. As a boy, growing up in an Iowa farm community, despite the fact that I grew up in a home filled with books, it was very clear to me that if I was to be a real man, I should not spend much time reading; I should not spend much time thinking. Rather, I should do things that involved large muscle activities, getting out and proving myself through competitive, physical effort. Thinking was a wimpish activity, a girlish activity. The image of the scholar or the scientist in our society is not a positive one; it’s a target of jokes and ridicule, an image that we make fun of and basically do not admire. Within the last decade, during the Reagan years, this anti-intellectualism was epitomized not only by the President himself, but also by the way we followed his lead. One result was an enormous deterioration of our universities and research facilities. From the perspective of short-term national economic and military competitiveness, we have undermined our critical scientific and technical infrastructure. From a longer cultural perspective, we have put our entire culture in jeopardy by turning our backs on the arts and humanities. Thus, we start at an extraordinary disadvantage, not simply in terms of the lack of bricks and mortar and the lack of people and the current-day resources that go into education, but because of an anti-intellectual attitude toward the whole area of ideas, learning, inquiry and scholarship. That attitude is the more difficult condition to change. As we move more and more into a world economy based on knowledge, a change in our attitudes toward knowledge is required in order for us to continue as a significant force in the world. With that as a context, let us examine the recent history of the economy of scholarly communications. Over the past century, scholarly communication as we have known it in the United States and throughout the Western world has essentially been a supply-driven system. It’s been driven by a widely shared set of standards concerning both personal and institutional excellence. At a personal level, scholarship has been driven by the desire for tenure within the academic environment, or for grants and contracts. Pressures related to tenure, grants, and contracts have heavily influenced what and how much we publish. The quality of material is often not taken into account. We may ask how many of the published articles come from refereed journals, but we tend to focus on the number of articles, not their quality. At the institutional level, the quality of an academic library is measured by the number of journals that are collected. It is not measured by the use level-how much the material is used-or by how valuable the material in the library may be. What is measured is the size of the collection. Big is good; a big library is a good library, and an institution that has a big library is, by definition, a good institution. The fundamental ways of measuring and certifying the excellence of an academic library are very much keyed to size of the collection, not its use or its usefulness. Publishers are aware that universities tend to purchase materials based upon the notion that any university that is really worth its salt will have virtually everything that has been printed. To the extent that a
The Economics of Scholarly Communication
425
university library does not have everything, it is a less good institution. The best institutions have it all; the less good institutions have less than all of it. Those quantitative standards of excellence, personal and institutional, have been for many years the primary forces driving the economics of the scholarly communications business. They drive decisions to purchase materials whether or not they are read. They create a monopoly-like system, where publishers can charge virtually any price for their materials because they are assured that the material will be purchased. This is particularly true, of course, in the journals field, where libraries hate to break a series. The notion of having an incomplete series of a given title is virtually unthinkable. These standards, and the resulting price insensitivity, have led us to the economic situation that we face today. In the future, we will see fundamental changes in the economics of scholarly communication, not because librarians will refuse to pay the high prices of publications but because they will pay much more. I am struck by the parallels between scholarly communications and child care. Child care, historically, has been a nonmonetized service, a service we have assumed that we could get without money exchanging hands. In the so-called “traditional” families, the man of the house would be paid a certain amount of money for his work; the mother would work at home with no cash payment for her work. The salary of the father would cover the value that both members of the family were adding to the economic system. Today, we are seeing a major monetization of the child-care field. Women are saying that they are no longer prepared to be unreimbursed for the value they add to the social system. They are leaving their homes in droves and buying child-care services with their incomes. We are seeing some basic structural changes in the social system. I predict a parallel kind of change in the area of scholarly communications. The greatest single element of cost in scholarly communications is the development and maintenance of the author. That totally nonmonetized factor probably constitutes at least 90 percent of the “real” costs of scholarly communications. Yet, from the publishing and communication field as we know it, that is a “free” asset. Nothing in the price of scholarly publications covers that aspect of the costs of communications. The other costs, beyond the development and maintenance of the writer, constitute an insignificant portion of the full cost of communications. Why, you might ask, should we expect scholarly communications to experience the same kinds of changes we are now experiencing in child care? Because of the economics of higher education and research. If we examine university economics today, we see that the costs of higher education and research have steadily escalated. There is every reason to believe that university costs will continue to rise rapidly in the years ahead, particularly as universities find themselves competing with the private sector for the most able faculty members. Universities will have to pay their faculty more and provide expensive research facilities for them in order to attract and retain the best of them. At the same time that costs are escalating rapidly, sources of revenue are disappearing. We are experiencing the rapid decline of public subsidies for higher education. Furthermore, universities cannot continue to raise tuition indefinitely. Tuitions for students have already reached a point where an increasing proportion of young people are unable to afford a university education. It is therefore reasonable to expect that universities will seek new ways to fund their enterprises. One obvious way to do this is to capitalize upon the intellectual products of the tmiversity’s faculty. That process is well underway in the sciences, and we can expect it to expand considerably in the years ahead.
426
R. R. ROWE
In 1988, for example, the top twelve universities in the United States were issued 361 patents for discoveries made by their faculty. The list includes MIT, Berkeley, Stanford, Minnesota, Harvard, and Cal Tech. About $50 million of patent royalties were generated in those universities in that same year. Ten years ago the figure was $10 million. If current trends continue, we can expect a rapid increase in these patents, which allow universities to turn their faculty research into a source of funds. In addition, businesses and universities are increasingly entering into joint endeavors designed to capitalize on the intellectual products of the university faculty. The University of Houston, for example, recently sold to DuPont the exclusive rights to Paul Chu’s research results in superconductivity. DuPont paid the University several million dollars for those rights. With the economic pressures upon universities and with the shortening of the timeframe between a scientific discovery and its commercial application for profit, I predict that tenure will soon become fundamentally outmoded. Royalties from faculty products will be increasingly used as a source of revenue. I expect universities to look more and more to other intellectual products -the ideas, the publications, the writings of faculty-as potential sources of revenue to offset the escalating operating costs. The prices charged by universities for the editorial offices of publishers will continue to increase as another source of additional revenue. Looking to the future, we can be confident that as our societies are increasingly centered around information, there will be more writers, more readers, and more value attributed to information. It seems inevitable that there will be a greater demand for information, and that scholars and researchers will become increasingly responsive to immediate financial demands. They will focus on efforts that will generate short-term returns on investment, on consumable information, and on items of information that promise high short-term financial gains. Scholarship will, under this scenario, shift away from long-term, disinterested inquiry toward those matters that can return a fairly quick dollar to the institutions that pay for the development and support of scholars and researchers. Finally, scientific discoveries will increasingly become privatized and withheld from public view. As ideas are seen to have commercial value, there will be strong forces to keep them secret and use them for competitive advantage in the commercial marketplace. One recent example illustrates this point. In early 1985 Narendra Karmarkar, a theoretical mathematician at Bell Labs in New Jersey, developed a breakthrough formula in the field of linear programming. He solved a theoretical mathematical problem that had been viewed as unsolvable. Bell Labs applied for a patent for that solution and kept the algorithm secret for three years until a patent was granted. The implications of the formula are enormous for a wide range of practical applications that use complex scheduling systems (such as airlines and trucking), and could involve cost savings of millions of dollars. Such discoveries raise major legal and social questions concerning the idea of “intellectual property.” Is it appropriate for us to consider such ideas as the personal property of their discoverer, or of the discoverer’s employer? What are the broader implications of such policies for our society? One inevitable result of this scenario will be a dramatic increase in the cost of scholarly publications. Universities will be forced to redefine their standards of excellence. They simply will not be able to afford to collect materials in anticipation of their use and will be forced to adopt policies that are based on demand, rather than supply. Access to information will become the major criterion of effectiveness for libraries. Libraries will be evaluated in terms of their ability to get what their users need quickly and in a form that is easy to use.
The Economics of Scholarly Communication
427
What are our options for supporting scholarly communications in the future? I think there are basically two divergent paths we could follow. First, we could continue on our current path with “marketplace” policies. This path will lead to greater financial pressures upon the universities-the elimination of tenure, the reduction of available resources for scholarship, and intense searches for additional financial resources; the capitalization of the university’s greatest resource, its faculty and student products; and increased privatization of intellectual property. That course, in my opinion, would constitute social suicide, leading us down the path of becoming a second-rate nation. An alternative path is a revitalization of the public role in higher education and scholarship. We need increased subsidization of scholarship and research, and clearer public policies concerning intellectual property. What ideas should be in the public domain and widely accessible and what ideas are legitimate private property? Increased access to the results of scholarship must be ensured as a matter of public policy and funded as a social investment. Such investments are fundamental to both the robust development of science and technology and the thriving of democracy. The future of scholarly publishing is not an issue of technology; it is an issue of economics and social policy. We must arrive at a consensus concerning the kind of society we want to live in, and the kind of intellectual infrastructure we need as a foundation for that society. We must be clear about the sources of financial support for that scholarship, about who will have access to that scholarship, and about who will be allowed to benefit from the knowledge that we generate.
1989
0364~6408/89 $3.00 + .OO Copyright 0 1989 Pergamon Press plc
THE ECONOMICS OF SCHOLARLY COMMUNICATION RICHARD
R. ROWE
President, The Faxon Company 15 Southwest Park Westwood. MA 02090
My focus today is on the economics of scholarly communication. I will briefly look at the recent history of this topic, explore some of the current trends in the way scholarly communication is financed, and ask a few questions about the way we would like to fund scholarly communication in the future. But first, let me make a few comments about technology and its impact around the globe. It is increasingly clear that information technology will in the next few decades transform the communication of ideas among all people. To cite just one example, we are all familiar with the effect of CD-ROM upon the publishing business- the incredible ability to get 500,000 pages of text upon a little disc that’s 5-l/2 inches in diameter. I heard last week, however, that a research and development firm in California has abandoned its effort to produce a double-density CD-ROM disc-that is to put a million pages on a S-1/2 inch disc-and that they are going for what they called the “quad”- a quadruple-density disc, putting 2-l/2 million pages of text upon one disc. The company predicted that the disc would be available for the commercial market in about 18 months. Imagine 2-l/2 million pages of text on a single 5-l/2 inch disc, and then put that in a juke box that takes four or five discs! That illustrates the kind of impact technology will have on the ways we will share ideas with each other in the future. Not only can change be profound, but it can be extraordinariIy fast. Look at how, in less than ten years, the personal computer has transformed the way we do business and think about our business. More recently, look at the way the facsimile machine has changed the way we communicate with each other. Think for a moment about the potential impact of the fax machine upon the postal services and, therefore, upon the efficient and cost-effective delivery of scholarly publications. It is not unreasonable to expect that the fax machine will make it extraordinarily more difficult for us to keep the costs of delivery of printed information under reasonable control in the years ahead. If “E-mail” and facsimile transmission of documents remove from the Postal Service the “high end” of its market, lower-class postal services are likely to increase significantly in cost and decrease in effectiveness. That would change the economics of hardcopy distribution and make newer electronic transmission technologies more attractive. As tempting as it is to talk about technology, I will focus today upon what I see to be a Editor’s Note: Dr. Rowe’s presentation was given on May 17, 1989 as the Spring Lecture at Ohio State University.
423
424
R. R. ROWE
less visible, harder to isolate, and yet in many respects more fundamental set of issues-that is, the economics of scholarly communication. As we think about a society that is moving toward an information age, we in the United States start from a position of being disadvantaged. In a knowledge-based society, information becomes the critical variable that determines the difference between success and failure. We are at a disadvantage in the United States because, historically, we have always undervalued ideas and have been essentially an anti-intellectual society in comparison with most other developed societies. In the American culture, “thinking” is a feminine activity, not a masculine activity. The “real man” is symbolized by the Lone Ranger or, more recently, Rambo, who proves his worth in a gun battle. As a boy, growing up in an Iowa farm community, despite the fact that I grew up in a home filled with books, it was very clear to me that if I was to be a real man, I should not spend much time reading; I should not spend much time thinking. Rather, I should do things that involved large muscle activities, getting out and proving myself through competitive, physical effort. Thinking was a wimpish activity, a girlish activity. The image of the scholar or the scientist in our society is not a positive one; it’s a target of jokes and ridicule, an image that we make fun of and basically do not admire. Within the last decade, during the Reagan years, this anti-intellectualism was epitomized not only by the President himself, but also by the way we followed his lead. One result was an enormous deterioration of our universities and research facilities. From the perspective of short-term national economic and military competitiveness, we have undermined our critical scientific and technical infrastructure. From a longer cultural perspective, we have put our entire culture in jeopardy by turning our backs on the arts and humanities. Thus, we start at an extraordinary disadvantage, not simply in terms of the lack of bricks and mortar and the lack of people and the current-day resources that go into education, but because of an anti-intellectual attitude toward the whole area of ideas, learning, inquiry and scholarship. That attitude is the more difficult condition to change. As we move more and more into a world economy based on knowledge, a change in our attitudes toward knowledge is required in order for us to continue as a significant force in the world. With that as a context, let us examine the recent history of the economy of scholarly communications. Over the past century, scholarly communication as we have known it in the United States and throughout the Western world has essentially been a supply-driven system. It’s been driven by a widely shared set of standards concerning both personal and institutional excellence. At a personal level, scholarship has been driven by the desire for tenure within the academic environment, or for grants and contracts. Pressures related to tenure, grants, and contracts have heavily influenced what and how much we publish. The quality of material is often not taken into account. We may ask how many of the published articles come from refereed journals, but we tend to focus on the number of articles, not their quality. At the institutional level, the quality of an academic library is measured by the number of journals that are collected. It is not measured by the use level-how much the material is used-or by how valuable the material in the library may be. What is measured is the size of the collection. Big is good; a big library is a good library, and an institution that has a big library is, by definition, a good institution. The fundamental ways of measuring and certifying the excellence of an academic library are very much keyed to size of the collection, not its use or its usefulness. Publishers are aware that universities tend to purchase materials based upon the notion that any university that is really worth its salt will have virtually everything that has been printed. To the extent that a
The Economics of Scholarly Communication
425
university library does not have everything, it is a less good institution. The best institutions have it all; the less good institutions have less than all of it. Those quantitative standards of excellence, personal and institutional, have been for many years the primary forces driving the economics of the scholarly communications business. They drive decisions to purchase materials whether or not they are read. They create a monopoly-like system, where publishers can charge virtually any price for their materials because they are assured that the material will be purchased. This is particularly true, of course, in the journals field, where libraries hate to break a series. The notion of having an incomplete series of a given title is virtually unthinkable. These standards, and the resulting price insensitivity, have led us to the economic situation that we face today. In the future, we will see fundamental changes in the economics of scholarly communication, not because librarians will refuse to pay the high prices of publications but because they will pay much more. I am struck by the parallels between scholarly communications and child care. Child care, historically, has been a nonmonetized service, a service we have assumed that we could get without money exchanging hands. In the so-called “traditional” families, the man of the house would be paid a certain amount of money for his work; the mother would work at home with no cash payment for her work. The salary of the father would cover the value that both members of the family were adding to the economic system. Today, we are seeing a major monetization of the child-care field. Women are saying that they are no longer prepared to be unreimbursed for the value they add to the social system. They are leaving their homes in droves and buying child-care services with their incomes. We are seeing some basic structural changes in the social system. I predict a parallel kind of change in the area of scholarly communications. The greatest single element of cost in scholarly communications is the development and maintenance of the author. That totally nonmonetized factor probably constitutes at least 90 percent of the “real” costs of scholarly communications. Yet, from the publishing and communication field as we know it, that is a “free” asset. Nothing in the price of scholarly publications covers that aspect of the costs of communications. The other costs, beyond the development and maintenance of the writer, constitute an insignificant portion of the full cost of communications. Why, you might ask, should we expect scholarly communications to experience the same kinds of changes we are now experiencing in child care? Because of the economics of higher education and research. If we examine university economics today, we see that the costs of higher education and research have steadily escalated. There is every reason to believe that university costs will continue to rise rapidly in the years ahead, particularly as universities find themselves competing with the private sector for the most able faculty members. Universities will have to pay their faculty more and provide expensive research facilities for them in order to attract and retain the best of them. At the same time that costs are escalating rapidly, sources of revenue are disappearing. We are experiencing the rapid decline of public subsidies for higher education. Furthermore, universities cannot continue to raise tuition indefinitely. Tuitions for students have already reached a point where an increasing proportion of young people are unable to afford a university education. It is therefore reasonable to expect that universities will seek new ways to fund their enterprises. One obvious way to do this is to capitalize upon the intellectual products of the tmiversity’s faculty. That process is well underway in the sciences, and we can expect it to expand considerably in the years ahead.
426
R. R. ROWE
In 1988, for example, the top twelve universities in the United States were issued 361 patents for discoveries made by their faculty. The list includes MIT, Berkeley, Stanford, Minnesota, Harvard, and Cal Tech. About $50 million of patent royalties were generated in those universities in that same year. Ten years ago the figure was $10 million. If current trends continue, we can expect a rapid increase in these patents, which allow universities to turn their faculty research into a source of funds. In addition, businesses and universities are increasingly entering into joint endeavors designed to capitalize on the intellectual products of the university faculty. The University of Houston, for example, recently sold to DuPont the exclusive rights to Paul Chu’s research results in superconductivity. DuPont paid the University several million dollars for those rights. With the economic pressures upon universities and with the shortening of the timeframe between a scientific discovery and its commercial application for profit, I predict that tenure will soon become fundamentally outmoded. Royalties from faculty products will be increasingly used as a source of revenue. I expect universities to look more and more to other intellectual products -the ideas, the publications, the writings of faculty-as potential sources of revenue to offset the escalating operating costs. The prices charged by universities for the editorial offices of publishers will continue to increase as another source of additional revenue. Looking to the future, we can be confident that as our societies are increasingly centered around information, there will be more writers, more readers, and more value attributed to information. It seems inevitable that there will be a greater demand for information, and that scholars and researchers will become increasingly responsive to immediate financial demands. They will focus on efforts that will generate short-term returns on investment, on consumable information, and on items of information that promise high short-term financial gains. Scholarship will, under this scenario, shift away from long-term, disinterested inquiry toward those matters that can return a fairly quick dollar to the institutions that pay for the development and support of scholars and researchers. Finally, scientific discoveries will increasingly become privatized and withheld from public view. As ideas are seen to have commercial value, there will be strong forces to keep them secret and use them for competitive advantage in the commercial marketplace. One recent example illustrates this point. In early 1985 Narendra Karmarkar, a theoretical mathematician at Bell Labs in New Jersey, developed a breakthrough formula in the field of linear programming. He solved a theoretical mathematical problem that had been viewed as unsolvable. Bell Labs applied for a patent for that solution and kept the algorithm secret for three years until a patent was granted. The implications of the formula are enormous for a wide range of practical applications that use complex scheduling systems (such as airlines and trucking), and could involve cost savings of millions of dollars. Such discoveries raise major legal and social questions concerning the idea of “intellectual property.” Is it appropriate for us to consider such ideas as the personal property of their discoverer, or of the discoverer’s employer? What are the broader implications of such policies for our society? One inevitable result of this scenario will be a dramatic increase in the cost of scholarly publications. Universities will be forced to redefine their standards of excellence. They simply will not be able to afford to collect materials in anticipation of their use and will be forced to adopt policies that are based on demand, rather than supply. Access to information will become the major criterion of effectiveness for libraries. Libraries will be evaluated in terms of their ability to get what their users need quickly and in a form that is easy to use.
The Economics of Scholarly Communication
427
What are our options for supporting scholarly communications in the future? I think there are basically two divergent paths we could follow. First, we could continue on our current path with “marketplace” policies. This path will lead to greater financial pressures upon the universities-the elimination of tenure, the reduction of available resources for scholarship, and intense searches for additional financial resources; the capitalization of the university’s greatest resource, its faculty and student products; and increased privatization of intellectual property. That course, in my opinion, would constitute social suicide, leading us down the path of becoming a second-rate nation. An alternative path is a revitalization of the public role in higher education and scholarship. We need increased subsidization of scholarship and research, and clearer public policies concerning intellectual property. What ideas should be in the public domain and widely accessible and what ideas are legitimate private property? Increased access to the results of scholarship must be ensured as a matter of public policy and funded as a social investment. Such investments are fundamental to both the robust development of science and technology and the thriving of democracy. The future of scholarly publishing is not an issue of technology; it is an issue of economics and social policy. We must arrive at a consensus concerning the kind of society we want to live in, and the kind of intellectual infrastructure we need as a foundation for that society. We must be clear about the sources of financial support for that scholarship, about who will have access to that scholarship, and about who will be allowed to benefit from the knowledge that we generate.