What happens when the gods of high finance dump a gigantic pile of gold on the richest university in the world?
It sounds like the kind of hypothetical one might pose in a smoke-addled dorm room at 2 a.m. But it is, of course, what actually happened to Harvard University, along with a few of its elite competitors, over the last 20 years.
The answer is that the university reveals its true self. It shows the world what it cares about—and what it doesn't.
In 1990, Harvard had an endowment of about $4.7-billion. That was still a lot of money, about $7.7-billion in today's dollars. Only five other universities have that much money now. Over the next two decades the pile grew to colossal heights, $36.9-billion by mid-2008.
Harvard spent the money on many things. But not a dollar went to increasing the number of undergraduates it chose to bless with a Harvard education. In 1990 the university welcomed slightly more than 1,600 students to its freshman class. In 2008, $32-billion later, it enrolled slightly more than 1,600 freshmen.
That is remarkable stinginess. Harvard undergraduate degrees are immensely valuable, conferring a lifetime of social capital and prestige. The university receives many more highly qualified applicants than it chooses to admit. Because the existing class includes underqualified children of legacies, rich people, politicians, celebrities, and others who benefit from the questionable Ivy League admissions process, Harvard could presumably increase the size of its entering class by, say, 50 percent while improving the overall academic quality of the students it admits.
Granted, it would cost money to teach more students. The university would need to invest in land and buildings and professors. But that's precisely what the university spent the endowment on. The Faculty of Arts and Sciences alone expanded by more than 125 positions over the past decade and increased spending by hundreds of millions of dollars. The university gobbled up nearby land and erected a collection of handsome new buildings, creating over six million square feet of new space since 2000 alone. Yet none of the brilliant new people and buildings and land were used to give more undergrads a Harvard education.
Instead, in a fantastic public-relations coup, Harvard announced that it was spending a small fraction of its endowment on making the university more affordable for the upper-middle class. For that, it was praised to the skies for its commitment to opportunity and the egalitarian ideal. Competitors scrambled to follow suit, while also doing little or nothing to serve more undergraduate students.
That's because the true currency of elite higher education is admissions, not financial aid. And even more than graduate or professional programs, of which Harvard has many, undergraduate education is where colleges decide whether to narrow class divisions or make them wider. Harvard could have used its great fortune to create more spots for deserving low-income students and hire people to fan out across the world and find them. Instead, it spent a little bit of what it had a lot of—money—while jealously hoarding its real store of value.
Of course, we now know that the gigantic pile of gold wasn't as high as it seemed. In early September, endowment officials announced that they had lost $10-billon, a 27-percent drop. That has produced a predictable spate of blame-casting and general unhappiness. More professors and buildings and land increased annual operating costs substantially, requiring bigger payouts from the endowment. The university budgeted for those costs without allowing for the possibility of a collapse in the financial markets and exotic investments in which the endowment was entwined, proving once again that money is a great leveler: It makes even the smartest people in the world act stupidly.
Vanity Fair sent a reporter to Cambridge this year to assess the damage. She was told that the university had lowered thermostats by four degrees and would no longer be serving free coffee. Sources mentioned "overflowing trash cans" and larger class sizes. I assume this was some kind of elaborate prank cooked up by the university's Future Saturday Night Live Writers Club. What's the marginal cost of free coffee? Did the university reduce class sizes when all those newly hired professors came to town?
When the thermostat gambit failed to make up for the $10-billion hit, Harvard waited until the campus emptied out for the summer and then laid off almost 300 clerical and technical workers. The top administrators who lost the money and the full-time faculty members who received the money were unscathed.
That's because the real priority of elite higher education, as the receding tide of money has exposed, is the greater glory of elite higher education and the administrators and faculty members who work there. That's where all the money went, and that's where, now that some of the money turns out to have never existed in the first place, it needs to come from.
And when those cuts happen, as they must, Harvard and its peers should take the chance to assess why they made the choices they made with their huge piles of gold, and how long they can keep making them in the future.
Elite universities have benefited mightily from a number of converging long-term trends, none of their making. The markets made them rich, America made them famous, globalization and the information revolution made their services particularly valuable. The winner-take-all society made them objects of aspiration, nexuses of money, power, and prestige, places where those forces pulse and converge.
They are, without a doubt, extremely valuable institutions that contribute much in the way of science, scholarship. and culture. They make the world a better place. But they've mistaken their good fortune and great fortunes for virtue, and have lost their way.
An institution truly dedicated to teaching students has natural limits on how much money it needs. At some point, the land and space and professors suffice.
An institution dedicated to accumulating more money and prestige? There are no limits to those needs. They can never be satisfied.
The thought-experiment-made-real of Harvard's monstrous endowment proves that absolutely. In June 2008, at the apex of the endowment's illusory height, President Drew Gilpin Faust of Harvard dedicated much of her first commencement address to explaining why the university was not as rich as it seemed. Not because she saw the fool's gold for what it was, but because the need to spend was so great. "Our accountability to the future challenges us to do not less, but ever more," she said. Ever more. Aspiration without limit, accumulation without end.
That unquenchable thirst for resources, which is by no means unique to Harvard, has spread throughout the larger body of American higher education. Every state and city has its would-be Ivies now, striving for ways to build a heap of cash, not admit as many undergraduates as possible, and charge more tuition to those who remain.
Undergraduates are increasingly being used as decoration, passing strangers handy for photographs in brochures. That's why admissions officers work so hard to get them in all manner of shapes, sizes, and colors. And that's why nobody wants to admit more of them—you only need so many to fill out a brochure, and the more applicants you reject the more awesomely selective and unattainable—and thus attractive—you seem.
Even the greatest universities weren't built to handle the stress that comes with unlimited institutional and public need. They're schools, not governments—educational institutions, not nation-states. If they're not careful, the unruly and immensely powerful forces of wealth and aspiration will break them apart.
It's said that the wealth of the rich is their fortified city; they imagine it an unscalable wall. That some people, eager for money, have wandered from the faith and pierced themselves with many griefs. Such truths were well known to those who stamped "Veritas" on the Harvard seal hundreds of years ago. The university needs to learn them again and to get back to the simpler, smaller, more important task of helping people learn.