Tuesday, June 08, 2004

Harvard’s Endowment Is A Symbol Of Much That Is Wrong With Higher Education


Dear Colleagues:

It has been revealed that the head of the group which “runs” Harvard’s endowment was paid 6.9 million dollars for 2003. But he was a piker in the compensation department. One of his subordinates, who “runs” domestic bonds, was paid 36.8 million. Another subordinate, who “runs” Harvard’s international bonds, was paid 35.6 million. This is nice work if you can get it, especially since payments of this type have been occurring for many years now.

If memory serves, Harvard has claimed for years, and plainly seems to be claiming now, that payments like this are needed to get money managers skilled enough to obtain the high returns that Harvard’s 19 plus billion dollar endowment has earned. It now appears, however, that this is pretty fallacious. According to what I’ve read, Harvard’s endowment has made an average annual return of 14.3 percent for the last ten years. But Yale’s endowment, which is a not exactly poverty stricken 11 billion dollars, has earned an average annual amount of 16 percent over the last 10 years, while last year the head manager of that endowment was paid “only” a fraction over one million dollars ($1,027,685, to be exact). The head manager for the University of Texas’ funds of 14.8 billion dollars earned a paltry $743,316 last year, and, while complete figures for Texas apparently are not available on a 10 year basis, last year Texas earned 12.8 percent on its 14.8 billion while Harvard earned the lesser percentage of 12.5.

It seems that a relatively small number of Harvard’s 300,000 graduates are finally beginning to complain about what some people might see as a gigantic ripoff worthy of our Wall Street sharks. Thus, one Harvard alumnus points out that the two bond managers together took home about the same amounts as will be raised by the 5.1 percent tuition increase which Harvard is socking to its students (whose tuitions are going up to $27,448, no less). This same alumnus has the nerve -- the nerve! -- to in effect level an accusation of hypocrisy at Harvard officials up to and including President Sommers because the officials lament the fact that students do not go into low paying public interest careers of one type or another, while at the same time they are socking students with huge tuitions, which require huge loans, which leave the students with huge debts, which make it impossible for them to do anything other than try to make gobs of money in non-public service jobs. Another alumnus, a historian, has the nerve -- the nerve! -- to say the outlandish compensation levels of the money managers is a question of values, as evidenced by the fact that Harvard, citing budgetary cutbacks, has cut 10 librarians while paying a total of over 100 million dollars to the investment types. (I’ll bet that cutting 10 librarians might have saved Harvard as much as 300 to 500 thousand dollars. Whew! What a relief!)

Though a small number of alumni are objecting to these outlandish pay packages, Harvard vigorously defends them. Its spokesman for the defense is a vice president whose last name is Rapier. As Dave Barry says, I’m not making this up. But whether the joke relates to the act or the blade is not entirely clear. (The vice president is a woman, however.)

It is reported that President Summers did not respond to requests for interviews on the money mangers’ compensation, does not answer correspondence from angry alumni about it, and his office refers inquiries about it to the Rapier. As Jim Nabors used to say as Gomer Pyle, “Supriise, supriise, supriise.”

But enough of this comedy. It’s time to get serious. As some people have been saying and writing -- Harvard’s former President Derek Bok among them -- the universities of this country have ever more been adopting commercial values rather than academic ones. Some university presidents are now making in the neighborhood of a million dollars per year, lots of them are making 300 to 700 thousand dollars, star professors are being paid fortunes, coaches -- coaches, for God’s sake -- are being paid in the millions, and money is in the forefront of the academic mind. Learning, honesty, setting a moral example and all the rest of this old fashioned stuff takes a back seat -- in fact, the seat is so far back that it is hardly even in the car or bus anymore. Students are socked with ever increasing tuition bills, to the point where college -- let alone graduate schools -- are financially out of reach for working class and lower middle class persons who otherwise would go to university. In general, selfishness reigns unmitigated.

The Harvard endowment and its compensation practices symbolize the extent to which greed has taken over the academy. Think of it this way: if you assume that Harvard has 15,000 students in its various undergraduate and graduate schools (15,000 is probably too high an estimate), and if you further assume it costs a student about $50,000 per year in tuition, room, board, etc. to go to Harvard (which is probably pretty close give or take a few thousand dollars one way or another), then the total bill of all Harvard students for tuition and expenses is 750 million dollars per year. But the average earnings of 14.3 percent on Harvard’s endowment, which is now about 19 billion dollars, are $2.71 billion per year. The average amount of earnings on Harvard’s endowment, in other words, is nearly four times the total tuition and other expenses of all of Harvard’s students put together. So Harvard could pay every nickel needed by every student, and charge them nothing, while retaining nearly three-fourths of the average annual earnings on its endowment and all of the principal. But neither Summers nor the Rapier nor anyone else in authority at Harvard is likely to ever even consider anything that is within 100 country miles of this. Harvard is a part of the American plutocracy and damn well intends to stay that way, regardless of its contrary protestations about educating the disadvantaged. And what is true of Harvard is true in general of lots of other American universities too, albeit they are not as wealthy as Harvard (though often they are very wealthy) and the kinds of figures I set forth above regarding the ratio of tuitions to average annual earnings may not be quite as favorable at these other schools as at Harvard.

Nor is Congress worth a damn in this equation. Congress’ only response for many years has been to make more money available in loans and loan guarantees, which enables universities to jack up their tuitions ever more so that students can pay ever more and graduate with ever higher debts. My own profession, legal academia, is an area where Congress may have reached the nadir of do nothingness. To a vastly disproportionate extent lawyers run this country. Vastly disproportionate percentages of senators, congressmen, governors, state legislators and virtually all judges and prosecutors are lawyers. Lots of university presidents, corporate officers and major real estate people are lawyers. Community leaders are often lawyers. But the law schools, spurred on by the American Bar Association’s accreditors, have put law school and therefore the legal profession out of the financial reach of the poor, the lower middle class and, increasingly, even the middle class; they have put a major avenue of social mobility and accomplishment out of the reach of these groups. (The average tuition of ABA law schools in New England is now approaching $30,000 per year.)

The law schools and the accreditors get away with this because, lawyers and judges in effect being one huge national cartel, the ABA has persuaded almost every state supreme court not to let law graduates take the bar exam unless they graduate from a school approved by the ABA, which sees to it that law schools have high costs which necessitate high tuitions. Congress could put an end to the success of this high cost, high tuition cartel by a simple expedient that it has used in other areas. Congress gives the law schools and the states money -- billions upon billions every year - - for higher education. It therefore could say that graduates of any school approved by any federally recognized accrediting body -- not just by the high-cost-demanding ABA -- must be permitted to take a state’s bar exam, or it will cut off lots of the federal money going to that state’s law schools and/or other higher educational institutions. Since there are completely competent accrediting bodies other than the ABA which do not measure a school by its costs but by its quality, this simple congressional expedient would allow competent low cost schools to develop and flourish in order to serve the economically deprived working class and lower middle class. (In other fields, incidentally, allowing competent low cost suppliers to exist is called competition.)

But will Congress do this? Don’t hold your breath. It has been unwilling to do it previously, is in thrall to both the high cost educational establishment and the high cost ABA, and, in reality, doesn’t give a damn about people who cannot approach it with huge open wallets for the legalized bribery called campaign contributions. It is in thrall to the overarching credo symbolized by Harvard’s endowment and its compensation practices: money uber alles.

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