Tenure recently it seems has caught fire on the the scienceblogs sparked in large part by Steve Levitt of Freakonomics fame blog on getting rid of it. I can't really speak to his arguments based on his experience as an Econ professor at University of Chicago, what I can speak to is tenure in the biological sciences. Jake Young at Pure Pedantry makes a case (in my opinion a poor and misinformed one) to junk it there as well.
Jake's first main point: "Tenure supports bad teachers as much as it supports unproductive researchers."
As others have noted, tenure does not correlate with the quality of teaching at an institution. Small liberal arts colleges which focus on undergraduate education have tenure but still maintain a high level of teaching quality even amongst those with tenure. Why? Because that is what is valued and selected for. Most research universities the focus is not undergraduate education it is research especially in the biomedical sciences. These institutions draw in significant amounts of money off of grants. At SnobU more revenue is made off of grants than each tuition/room & board combined, investment income and contributions. That is how a junior faculty member gets tenure by how much they bring in. Grants are not easy to get. The selection is therefore for faculty members who focus primarily on research, churning out high impact papers which in turn allows them to draw in grants. Faculty who are poor teachers get tenure. Sometimes it seems they are even more likely to get tenure because they are not "wasting their time" preparing great lectures and instead devoting the time to research. Even faculty who like to teach catch on pretty quick and perception becomes reality, they spend less time teaching and more time focussed on research. The selection at these research universities is therefore for faculty members who focus on research and view teaching as a "burden", an obligation to fulfill.
Tenure has nothing to do with it. Without tenure these institutions would still be selecting for professors that are successful at getting grants. There just wouldn't be any protection for faculty members to speak their minds, to challenge the administration when the administration is acting in its selfish short-term interests. Where I attended graduate school, the administration tried to cut the stockroom because it "cost" the university money (nevermind the overhead from the grants was paying for it). The stockroom because all items go to one location and buys in bulk is able to extract from companies great deals that can not be matched, saving labs significant amounts of money. The university only sees dollar signs though and doesn't care. They are getting their cut of the grants no matter what in their view so to them the stockroom is an expense they can cut. This would hurt the university, common items could not be picked up easily and prices would rise which would reduce the productivity of the labs. Down the road this would hurt chances the chances of faculty members to get grants and make the departments less attractive to grad students/post-docs/potential new faculty members. What saved the stockroom was senior faculty members rallying and making this exact point showing the administration that the bean-counters they were listening to don't know the whole story. The added twist is that the bean-counters are the same people who negotiate at a university wide level and they were not able to get the same deals as the stock-room, so the bean-counters had extra incentive to try and get rid of the stockroom which was making them look bad.
The junior faculty could not do this because they did not have tenure. Those that did were able to speak their minds thus preventing the university from being too corporate and shooting itself in the foot. Which brings up one of the other reasons Jake thinks tenure can & should go: "I don't buy the argument about academic freedom at all. "
Academic freedom is not just about being able to put forth controversial ideas without fear of being fired (which is an important part of the deal) but it is also about faculty members having a say in how the university runs; challenging the administration, allowing for a true free market of ideas when it comes to the direction of the institution. Many times it isn't the big fight but the little things that add up over time.
The last thing Jake brings up is the unproductive tenured researcher taking a slot away from a deserving junior faculty member ("Tenure -- like Social Security -- is something I never expect"). In the biological sciences, which Jake is in, this is an absurd argument. Faculty members have to stay productive in order to get grants which helps pay their salaries. Faculty members without grants do not get as much money and usually are pushed out by the university. I have watched it happen. They are pushed into worse & worse lab spaces that get smaller and smaller sometimes having to share space with multiple other professors in the same boat. This is done to make room for the new blood. It motivates the other senior faculty who fear that happening to them, encouraging them to work even harder out of fears of agism. Most universities do not have a slot system (I think Yale still does but is talking of getting rid of it). Your "slot" is not being taken up by some tenured unproductive faculty member. The lack of positions is based on the economics of it all. More labs means more costs without an offsetting increase in grant money as the labs are smaller which is not good for the bottom line of these research universities. Don't blame tenure for this. It is an easy target and diverts from the real problems in academia- universities run like corporations instead of places of higher learning.
In science you move around a lot between grad school, post-doc and starting a junior faculty position. Most people at a certain point want to settle down. Tenure offers that reward for working hard. It is the carrot. Salary alone for many would not make up for that. Get rid of tenure and you probably would decrease the pool of people who would be interested in the sciences. It would become a greater mountain to climb. Who would this affect the most? My bet, those that already have a higher mountain to climb to begin with (see below) de facto making science even more white and male. I don't think putting a greater selective pressure for white males is a way to improve science. Want to improve science? Level the playing field and let women & minorities equally compete with white males. That is not happening now and therein lies a major problem that goes with the corporatization of academia that is affecting the sciences in the US that Jake does raise. Tenure though is not the problem.