Endowments, that is.
Large endowments for universities and colleges are not in and of themselves a problem or an embarassment, nor should institutions with large endowments hesitate to try and increase the size of their endowment still further both through investments and donations.
The real issue is one that Margaret Soltan eventually focused on in her critique of Harvard’s endowment management. A large endowment is like an IRA for an immortal. We spend down our IRAs eventually after we retire because we’re going to die and because as a society we’ve decided to limit the capacity of kin groups to accumulate wealth from generation to generation. However, income from interest is a big part of what makes retirement savings work. Institutions don’t spend down their endowments because they’re not going to die (usually).
The bigger an endowment, the more it contributes to the annual operating budget of an institution (educational or otherwise). The pointed questions we need to be asking then concern what is done with those increased resources.
Broadly speaking, you could do a number of things with large and ever-growing endowment income in an institution of higher education.
1) You could lower the cost of attending the institution. At some proportionate scale of endowment size, you could plausibly make the institution free for anyone admitted. At present, what most selective private institutions do, in effect, is charge a very high fee for relatively wealthy customers and a discounted fee relative to wealth for any customers below a set cutoff, all the way down to no fee.
It sounds very appealing in some respects to make attending completely free, but two things to consider. First, what’s the argument for making it free to wealthy families? That doesn’t serve a social justice objective. Even in a very well-endowed institution, there is a sizeable per-student cost. If it isn’t defrayed by tuition, it’s paid from endowment income, and that payment deprives the institution of other opportunities to use those funds elsewhere.
Second, there’s a lot of evidence out there that lowering the sticker price of selective higher education has a perverse impact on the quality of applicants, e.g., that parents are using high prices as an informational signal of quality. I understand this thinking better when I think about my own behavior in a high-end grocery store. I’m a foodie, but sometimes I’m buying an ingredient or product for a recipe where I don’t have personal experience with the quality difference between three products on the shelf. Yet I know one thing: I want the best product. I also don’t care too much about the price difference between a $5.00 product and a $9.00 product if what I’m trying to do is cook an elegant meal for guests. If the product is one that I think is going to make a significant difference in the end result, I may take the $9.00 price tag as an informational signal of quality and buy that. However, when I’m dealing with food where I have personal experience of the product, I often know that the most expensive product is not the best (or even more commonly, I may know that the three products are identical except for their pricing). As a professor, I know that the actual quality of the education you get at Harvard is probably less than what you get at many similar institutions, but it’s very hard for outsiders to fully grasp that, as it depends on information that can’t be easily accessed from the outside. Plus, of course, Harvard’s prestige as an institution translates into economic and social advantages for its students which may make it worth buying a Harvard education even if its day-to-day quality isn’t equal to some other institutions.
The upshot is that using endowment income to lower (or eliminate) the cost of attending a college or university across the board as opposed to the sliding-scale discounting that’s now the common practice might not be the best use of endowment income, and it might perversely damage the institution doing it.
2) You could use endowment income to increase the quality of the institution itself. Soltan focuses on this point, and properly so. What are most colleges and universities with large endowments doing with their incomes? I think the average or typical answer is, “Much much more of what they already do”. In other words, the expansion of capacity and capability has flowed amorphously out of the existing structure of most institutions. More research, more faculty positions, more administrative capacities, better facilities, upgraded infrastructures. An institute here, a center there. Super Size Me. Eggs in many baskets.
The counter to this strategy would be to argue that expanded incomes from endowments should be largely directed at some singular, specific creative goal, that the institution should resist pressure to increase its administrative capabilities, keep its faculty size largely static, maintain its facilities but not expand them, and do something spectacular and particular.
My question would be, what? Surely the goal of doing a singular spectacular thing with that income is not in and of itself self-evidently better than amorphously improving most of your capabilities in most of what you do. One of Soltan’s suggestions for Harvard has been to look at the example of Florida Southern College, which was designed by Frank Lloyd Wright. I guess the suggestion here is to build architectural or artistic marvels for the pleasure of future generations, to make something of lasting beauty. That’s appealing in a way, but it also has a bit of pharonic vanity about it. It doesn’t seem to me to self-evidently outweigh doing more research, hiring more faculty, beefing up administrative capacity, improving most facilities, investing in better infrastructure.
I can think of some ideas that are spectacular which appeal to me personally, including scribbling over the entire structure of the average liberal arts and professional curricula to try something completely new. But that would be extremely risky, the kind of risk that trustees charged with due diligence are asked not to take (to the point of being liable if they do.) But this is the kind of argument that anyone who complains about the size of university endowments is really obligated to take on board, because size really isn’t the question. If you’re not happy with endowments, what you’re really complaining about is the uses to which they are put. So, then: which uses make you unhappy, and why? What should be done instead (at the cost of no longer doing something which is presently being done)?